By Gaurang Somaiya
Volatility in rupee remained low ahead of the US jobs number and the RBI policy statement that was released on Friday. The RBI held rates unchanged the fourth consecutive meeting and signalled it would keep rates higher and liquidity tight to bring inflation closer to 4%. India’s CPI eased to 6.8% in August, from a 15-month high of 7.44% in July, but remains well above the central bank’s 2%-6% comfort band. The RBI held its inflation and growth forecast unchanged at 5.4% and 6.5% for the current financial year, despite signs of slowing global growth. Reaction on the rupee remained muted but India’s 10-year yield rose to 7.29% levels post the release of the policy statement.
During the weekend, it was geopolitics that disturbed the overall market sentiment. Gunmen from the Palestinian group Hamas rampaged through Israel, thereby killing at least 250 Israelis and escaping with dozens of hostages. The Israeli government formally declared war and gave the green light for “significant military steps” to retaliate against Hamas for its surprise attack, as the military tried to crush fighters still in southern towns and intensified its bombardment of the Gaza Strip. Rise in geopolitical tension is likely to attract safe haven buying in the dollar and that could trigger volatility for the greenback as well as for other major crosses. Fallout in markets will depend on further escalation and if conflict spreads to the rest of the Middle East region.
This week, on the domestic front, market participants will be keeping an eye on the inflation number and expectation is that it could ease-off in September. But, any escalation in global crude oil prices could impact inflation number in the coming months, especially after the rise in geopolitical tensions. From the US, CPI number will also be released; expectation is that inflation could ease to 3.6% in September as compared to 3.7% in the previous month. Apart from this, FOMC meeting minutes will also be important to watch and any hawkish comments could extend gains for the dollar. We expect the USDINR(Spot) to trade sideways with a positive bias and quote in the range of82.80and83.80.
(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)
