By Dilip Parmar
The Indian rupee depreciated for the second week in a row following foreign fund outflows and higher bond yields. In the week gone, foreign institutions were net sellers of $616mn in domestic equities while the rupee fell a quarter percentage to 83.25 a dollar. The Federal Reserve’s rate hikes, lower carry trade, higher crude oil prices and a strong dollar have undermined the rupee and local bonds.
USDINR Outlook
The failing attempt to cross 83.30 creates a chance for a near-term retracement in the USDINR. The negative divergence on the chart, fall in crude oil price and fading 11-weekly rally in the ICE dollar index could push the pair lower in the coming days. The pair has support at 82.70 and resistance at 83.35.
The ICE dollar index witnessed its first weekly decline after Friday’s NFP data. However, weekend geopolitical worries between Israel and Hama may support the haven dollar in the coming week. Technically, the greenback is still in an uptrend and the upcoming correction could be the normal retracement. It has resistance at 108 and support at 104.50.
Swap traders are divided on the chances of another Federal Reserve rate hike by December, pricing in roughly a 50% likelihood after the nonfarm payrolls report showed employers quickened the pace of hiring, well ahead of economists’ estimates.
What to Watch
The cinch September jobs report didn’t settle the debate about whether the Fed is done hiking rates. Minutes of the Fed’s September meeting (Wed.) may provide some insight into the upcoming Oct. 31-Nov. 1 FOMC meeting, which is shaping up to be one of the most difficult from the FOMC’s perspective. Two critical upcoming economic indicators CPI (Thurs.) and the University of Michigan consumer-sentiment survey (Fri.) may give a more definitive read.
(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own. Please consult your financial advisor before investing)
