2023-05-15 01:30:00
The Indian Rupee is expected to continue to weaken this week, with the move largely driven by US Dollar strength, while bond yields are expected to decline on slowing domestic inflation.
Once the US and Indian inflation figures are released, traders will likely follow the greenback to determine the direction of the rupee.
Last week, the rupiah fell 0.4% once morest the dollar as the latter strengthened and demand from importers offset the inflow of foreign capital into the Indian equity market.
Whenever the dollar strengthens, the rupee depreciates, but the domestic currency does not experience the same kind of appreciation when the dollar weakens, said Arnob Biswas, head of foreign exchange market research at SMC Global. Securities.
“Obviously we have certain factors like the RBI (Reserve Bank of India) stepping in to limit the appreciation,” Biswas said.
India’s central bank intervention in the foreign exchange markets is one of the reasons the country’s foreign exchange reserves rose to $596 billion, the highest level in more than 11 months.
Biswas expects the currency to trade in the 82.40-8.50 range this week, with exporters likely to sell USD at levels close to it to limit the slide.
Meanwhile, India’s annual retail inflation eased to 4.7% in April, its lowest level in 19 months, from 5.66% the previous month, mainly due to lower food prices.
Inflation gives “reasonable confidence, I would even say good confidence that monetary policy is on the right track,” India’s central bank governor Shaktikanta Das said at an event on Friday.
Retail inflation was below the RBI’s upper tolerance threshold for the second consecutive month and should lead to an extended pause in policy rates.
“Although inflationary risks from weather disruptions remain, for now, this impression should prompt the RBI to maintain a June policy pause,” said Sakshi Gupta, senior economist at HDFC Bank.
India’s benchmark bond yield ended below the key 7% mark at 6.9938% on Friday. The yield on the benchmark 10-year bond hit its lowest closing level since April 7, 2022.
Traders expect the benchmark yield to move in the 6.95-7.05% range this week.
“Trades below the 7% level on the 10-year bond may encounter resistance at 6.80%,” said Dwijendra Srivastava, chief investment officer – debt at Sundaram Mutual Fund.
“Around 6.80%, traders will start to feel a bit uneasy because rate cuts are not in sight and an extended pause is expected,” he said. -he adds.
KEY EVENTS: Indian Wholesale Price Inflation – May 15 (12:00 pm IST) Monthly US Retail Sales Data – May 16 (6:00 pm IST) US Week to May 8 – Demand job initial – May 18, Thursday (6:00 pm IST)
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