Amidst weaker-than-expected economic statistics from India, the rupee fell last week to a new record low and reached 82.85. While factory output fell for the first time in 18 months, higher food costs caused retail inflation to reach a five-month high of 7.4%. The U.S. core consumer price index jumped 6.6% from a year ago, the highest level since 1982, while the dollar index traded unchanged after reaching Rs. 113.92 last week, signaling the Federal Reserve will likely continue its aggressive tightening strategy for the time being.
Furthermore, higher-than-expected PPI data from the U.S. helped to strengthen the U.S. dollar. In the U.S. the producer price index for final demand increased by 0.4% MoM, exceeding the 0.2% increase that the market had predicted. Additionally, two ECB policymakers’ hawkish remarks pressured the dollar. We anticipate that the U.S. dollar will strengthen this week, breaking over the Rs. 113.92 mark to reach Rs.114.50 as investors anticipate that the Federal Reserve will continue with its aggressive tightening measures.
This week, the rupee is anticipated to trade with a bearish bias due to declining foreign exchange reserves. The currency would also be under pressure due to FII withdrawal from domestic equities markets. Investors will also monitor US data on industrial production and building permits. If USDINR maintains its position above Rs. 82.30, it may increase to Rs. 82.90. To maintain its upward trend toward the level of Rs. 82.70, the USDINR traded in wedges of upward resistance and support. After this week’s successful break of the important resistance level of Rs. 82.70, the pair is anticipated to continue trading in an upward direction reaching the level of Rs. 82.90.
On Monday, the rupee may strengthen toward the level of Rs. 82.20 due to a drop in crude oil prices. Additionally, the rupee might be supported by robust local equity markets. Investors will also continue to pay close attention to the NY Empire State Manufacturing Index. In order to trade toward the level of Rs. 82.20, USDINR (Sep) is likely to breach the Rs. 82.30 level.
