By Dilip Parmar
The Indian rupee appreciated for the second week in a row following dollar inflows. Local units remained the second best-performing currency among Asian baskets. In the week preceding, foreign institutions bought $1.2bn equities and $184mn debts while the rupee gained a quarter percent to 81.96 a dollar.
Outlook:
This week will be of high drama as we have 3 major central bank monetary policy decisions which could bring volatility back to the forex markets. Spot USDINR is expected to oscillate between Rs 82.30 and Rs 81.70.
The ICE dollar index gained the most in 10 weeks amid a short-covering rally ahead of the Fed meeting. The yen tumbled more than 2% to 141.73 a dollar, on speculation the Bank of Japan won’t change its yield curve control program at this week’s policy meeting. Elsewhere, crude oil headed for a fourth weekly gain amid tentative signs of global market tightening.
Though the greenback trend remains bearish, short covering rallies may continue this week in anticipation of hawkish Fed and month-end adjustment. The ICE dollar index has support at 99.50 and resistance at 102.70.
CFTC Position
CFTC data for the week through July 18th reflect a significant deterioration in dollar sentiment. Speculative Accounts’ overall positioning against the dollar versus the major currencies reflected an aggregate short position of $19.9bn in the latest week. The week-over-week increase in aggregate dollar shorts of $7.4bn was the largest single-week positioning shift against the dollar since 2020.
What to Watch:
All eyes will be on the Big 3 major central banks’ policy decisions. The Federal Reserve and European Central Bank are each expected to raise interest rates by 25 basis points. However, the most focus will be on policymakers’ signaling whether more hikes are likely or if they plan an extended pause. The Bank of Japan remains the outlier, with Governor Kazuo Ueda expected to continue pumping even as inflation remains above its 2% target.
(Dilip Parmar, Research Analyst, HDFC Securities Ltd. Views expressed are the author’s own. Please consult your financial advisor before investing.)