By Raj Deepak Singh, Analyst, ICICI direct

Rupee appreciated last week amid weakness in dollar, softening of crude oil prices and upbeat economic data from country. India’s GDP grew by 6.1% in Q4FY23, pushing the overall growth rate to 7.2% for FY23 despite global headwinds. Dollar retreated as disappointing economic data from US and comments from Fed officials reinforced the bet that Fed may forgo an interest rate hike in June meeting. Additionally, passage of bill from both House and Senate to suspend the debt ceiling reduced the safe haven status of dollar.

Recent manufacturing data showed activity in the sector contracted for 7th consecutive month and Job figures indicated that US labor market is cooling down gradually, which could ease pressure on inflation and give more incentive to central bank to hold rates steady. Additionally, investors fear that the debt deal will intensify the risk of recession by limiting government spending, which could make the Fed less likely to keep tightening. Even some of the policymakers were seen of having opinion of hitting pause button to see the impact of past tightening. As per CME Fedwatch tool markets are pricing in a 74% chance of the Fed hitting a pause button in its June meeting.

We expect Rupee to face strong resistance near 82.80 level and slip back to 81.80 level amid softening of crude oil prices and correction in dollar. Meanwhile, market participants will keep a close eye on RBI monetary policy meeting, where central bank is likely to keep policy rate unchanged. More focus will be on guidance from central bank to get cues on rate trajectory. Since last six months USDINR has been consolidating in between two converging trend lines. Now again last month it has failed to breach the higher end of the trend line near 82.80 and retraced back towards 82.30. So in the near term as long as it stays below 82.80, we expect the pair to slid towards 81.80 level which is support of rising trend line. Only a close above 82.80 levels may reverse the trend and open the door for 83.00/83.30 levels.

For Monday Rupee future maturing on June 27th may appreciate further till 82.25 levels as long as it sustains below 82.50 levels.

(Raj Deepak Singh is an Analyst at ICICI direct. The views expressed are the author’s own.)

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