FX weekly outlook

Major Developments

• India’s economy is expected to clock 9.5% growth in the current fiscal year according to analysts at Standard and Poor.
• The Eurozone economy grew more than initially estimated in Q2 of 2021. GDP expanded by 2.2% q-o-q in the final estimate for the period.
• The ECB kept its monetary policy unchanged but opted to slow down the pace of net asset purchases under its pandemic emergency purchase program.
• India's forex reserves increased by USD 8.89 billion to reach a record high of USD 642.45 billion in the week ended 3rd September.

USDINR Weekly performance & Outlook

• The USDINR pair made a flat opening at 73.03 levels. The pair remained volatile during the week and finally closed at 73.50 levels. Trade volumes were rather dull on account of holidays due to Labor Day in the U.S and Ganesh Chaturthi in India.
• The Indian rupee was initially steady against the dollar as the US dollar recovered because investors globally had turned their attention to monetary policy decisions by major central banks such as those in Canada and Europe in the coming days to determine the scope of policy normalization.
• The Indian rupee later fell sharply against the dollar because of strength in the greenback globally on concerns over the spread of the Delta variant of COVID-19, and as market participants awaited the outcome of the meeting of the ECB.
• Money market rates continued to remain under pressure with 3m T-bill cut-off coming in at 3.29% and 1y at 3.56%. The cut-off for the 7 day VRRR came in at 3.38%. The yield on the benchmark 10y ended at 6.19%. 3y and 5y OIS ended a couple of basis points higher at 4.65% and 5.14% respectively.
• India is likely to win inclusion into one of the world's top bond indices early next year, investment bank Morgan Stanley said, predicting it could trigger an instant $40 billion buying surge and as much as $250 billion over the next decade. The USDINR pair is likely to trade with a sideways bias in the week ahead and is likely to trade in a range of 73.20 - 74.20 in the coming week.

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