By Dilip Parmar
The Indian rupee fell to its lowest level since February, amid a softer tone in regional FX impacting the currency backed by a prevailing risk-off sentiment globally and higher crude oil prices. All eyes will be on this week’s RBI monetary policy stance and inflation forecast as it will decide the future path of the rupee level.
India’s forex kitty declined by $3.2bn to $603.9bn for the week ending July 28 as per the RBI weekly statistics. In the week gone, foreign institutions remained net sellers as they sold $247bn equities and bought $140mn in the debt market.
The dollar strengthened for the third straight week following mixed US economic data. On Friday, two Federal Reserve officials said slower US employment gains mean policymakers may soon need to consider how long to keep interest rates elevated which pushed the greenback lower. The ICE dollar index has been trading in a bearish sequence of lower tops and bottoms on the major time frames. It has resistance in the area of 103 to 103.50, sustainable trade above said level will confirm the trend reversal while breaking 100.5, dragging the buck towards a swing low of 99.60.
CFTC Position
In FX, flows are skewed towards dollar buying as speculators sold 5.2k euros, 1.5k yen, and 9.4k sterling futures. Flows in other currencies were muted, other than buying 2.5k Kiwi. Still, the aggregate dollar short fell by about $1.5 billion on the week to $19bn.
What to Watch
From the US consumer price index for July to the Reserve Bank of India’s monetary policy meeting. A closely watched measure of US inflation will probably illustrate more of the moderate price growth that theFederal Reservewants to see sustained. The Reserve Bank of India is likely to keep rates on hold on Thursday as the monetary authority looks to preserve growth while beating back inflation.
(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)