FX weekly outlook
|Major Developments
- Prices for an array of consumer goods rose less than expected in August in a sign that inflation may be starting to cool. The US CPI, increased 5.3% from a year earlier.
- Eurostat confirmed that the annual rate of increase in the euro area's CPI jumped from a 2.2% pace for July to 3.0% in August.
- India's foreign exchange reserves declined by USD 1.34 billion to USD 641.11 billion in the week ended September 10, 2021.
USDINR Weekly performance & Outlook
- The USDINR pair made a gap up opening at 73.60 levels. The pair remained volatile during the week and finally closed at 73.48 levels.
- The Indian rupee was slightly up against the dollar as foreign banks sold the US dollar in early trade, likely for foreign portfolio fund inflows into Indian equities.
- Market participants stated that the momentum in domestic equities on the back of recently-announced reform measures such as relief steps for telecom companies and approval by the Union Cabinet to set up a bad bank has resulted in buying interest from foreign portfolio investors.
- On the last trading day, the greenback gained against most currencies as the upbeat US retail sales data bolstered investor expectations that the US Federal Reserve will soon start tapering stimulus. The central bank's two-day policy meeting is scheduled for Tuesday-Wednesday.
- India's annual WPI rose to 11.39% in August from the previous month's 11.16%, Retail inflation based on CPI eased to a four-month low of 5.3% in August due to moderation in food prices along with a high base effect.
- India’s exports grew by 45.76% to USD 33.28 billion in August, compared to USD 22.83 billion in the same month last year. The trade deficit widened to USD 13.81 billion in August from USD 8.2 billion in the same month last year.
- We are perhaps in a phase where the emergence of growth concerns is increasing anticipation around the delay in rolling back ultra-accommodative measures by central banks like the Fed also further liquidity injections and monetary policy support from central banks like PBoC. This is keeping risk assets supported.
- The most important event in the coming week would be the US Fed policy (Wednesday 22nd Sept, 11:30 IST). It would be interesting to see whether the Fed goes ahead with the taper announcement in this policy itself or waits to buy some more time. Concerns from China, continuing threat from the Delta variant may just result in a more cautious approach from the Fed. The USDINR pair is likely to trade with a neutral to bullish bias in the week ahead and is likely to trade in a range of 73.20 - 74.30 in the coming week.
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