By Gaurang Somaiya
Rupee earlier in the month came under pressure and fell to fresh all-time lows after data showed trade deficit widened to the highest level in 10-months to $24.2 in August as compared to $20.7 billion in the previous month. The dollar gained against its major crosses and too weighed on the rupee after the Federal Reserve held rates unchanged, but hinted for one more rate hike in this year. Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months, but remain strong, and the unemployment rate has remained low. On the domestic front, FIIs too remained net sellers and selling in September was to the tune of over $2billion in the equity segment. But at the same time, active RBI intervention helped curtail the overall depreciation of the currency.
Next month, on the domestic front, focus will be on the RBI policy statement that is scheduled from 4thto 6thOct. Expectation is that the central bank is likely to keep rates on hold, but commentary from the governor is important to watch for. Global crude oil prices have been on the rise and inflation concerns are raising prospects that the central banks across the globe could continue to keep rates higher. Global factors will continue to keep market participants on the edge, but at the same time volatility in rupee will remain in check following RBI’s active intervention. We expect the USDINR (Spot) to trade sideways with a positive bias and take support in the zone of 82.50-82.80 and resistance could be capped at 83.50-83.80.
Dollar continued to trade with a positive bias and rose to the highest level in 12-months after the Federal Reserve held rates unchanged and maintained a hawkish stance. The Fed Chairman continued to raise concerns over inflation and that raised expectations over one more rate hike by the Fed in this year. Bond yield rose at the highest level in 17-years as Powell’s inflation language still remains strict. In terms of the projections, the Fed expects US GDP to grow at 2.1%, up from 1% growth projected in June. Meanwhile the unemployment rate, which currently stands at 3.8%, is seen reaching 4.1% in 2024. The dollar extended gains also after the US government avoided a federal shutdown after both the House and Senate agreed on a short-term funding deal. This month, market participants will be keeping an eye on the manufacturing and services PMI, employment data and growth number to gauge a view for the dollar. Better-than-expected data could extend gains for thecurrency.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)
