By Dilip Parmar
In the week gone by, the Indian rupee surged and purged but closed with no change. It has outperformed Asian currencies amid dollar inflows. The RBI surprised the market with a 10% ICRR to control inflation and remove surplus liquidity and kept the other rate unchanged with a “withdrawal of accommodative” stance. The domestic equity market remained under pressure, in line with its Asian peers. Foreign institutions remained net buyers of Indian equities and debt by investing more than $800mn in the past week.
After whipsawing amid mixed US economic data, the dollar index finally ended the week with gains of 0.81% to 102.84, up for a fourth straight week for the first time since February. The current monetary policy mix in developed nations and divergent economic momentum are acting as catalysts for a stronger US dollar. It is observed that the greenback does well in an environment where real Treasury yields and oil prices rise in tandem, which we are witnessing. Technically, the ICE dollar index has a downward-sloping trendline resistance at 103.50, slightly above 200 SDMA (103.42) and support at 101.50.
CFTC Position
Broader bearish dollar sentiment has moderated somewhat, as the latest positioning data from the CFTC shows. Non-Commercial Accounts cut short dollar positioning by a little over $3.4bn in the week through Tuesday, taking the aggregate bear bet on the dollar versus the major currencies back to $15.8bn. The reduction in net speculative dollar short positioning is due almost entirely to long liquidation in the euro. Net Euro longs were cut by $3.1bn.
Data last week encouraged the case for a prolonged pause in the Fed’s hiking cycle. But for the Indian traders, the focus will shift to India’s CPI which might leap above RBI’s tolerance level amid surging vegetable and food article prices.
(Dilip Parmar, Research Analyst, HDFC Securities Ltd. Views expressed are the author’s own. Please consult your financial advisor before investing.)
