Amidst a recovery in the U.S. dollar and risk aversion in global markets, the rupee declined last week and reached a low of 82.32. While this was going on, a dramatic decline in the price of crude oil helped to limit declines in local currency. The dollar index recovered from its lows for the year as expectations for rate cuts in the second half of the year were given less weight. Additionally, as consumer confidence among lower-income households improved and sparked prospects for an economic revival, the University of Michigan consumer sentiment for the U.S. surprisingly jumped to 63.5 in April 2023, supporting the dollar.
The dollar, however, lost gains after the Philadelphia manufacturing index dropped in April for the eighth straight month, indicating that prospects for growth over the following six months are still low.
Investors will continue to be on the lookout for important U.S. economic statistics to determine the state of the U.S. economy. Core PCE price index and Michigan consumer expectations statistics are anticipated to rise, which might enhance speculation that the Fed will keep tightening interest rates. The U.S. GDP data, meanwhile, is anticipated to indicate additional weakening, with its GDP expansion perhaps falling to 2% in the first quarter.
Increasing expectations that the Federal Reserve would increase interest rates more at its May meeting will cause the dollar index to rise higher, possibly reaching 102.60. Currently, the probability of a 25 basis point increase in May is estimated by the money markets to be at 86%. Additionally, rising concerns about a worldwide recession will restrain risk appetite, which would raise demand for safe-haven assets like the dollar.
With the U.S. currency strengthening and risk aversion spreading throughout global markets, we anticipate additional rupee depreciation in India. With a 1-week high of 82.32, USDINR recovered from a 4-week low. By forming lower low, and lower high patterns, it is currently trading in a downward resistance and support wedge.
In the upcoming trading sessions, the pair is anticipated to break the 50 EMA level at 82.24 and continue moving upward towards the resistance level of 82.50. As long as the rupee future maintains above 82.13 levels with a strong U.S. dollar and risk aversion in international markets, it may decline even more on Monday, maturing on April 26th, reaching 82.30 levels.
