By Gaurang Somaiya
Rupee consolidated in a narrow range even after the RBI’s policy statement, wherein it held rates unchanged and maintained its policy stance of ‘withdrawal of accommodation’. The central bank maintained its policy rate and stance considering India’s strong economic growth and sticky inflation.
Robust growth momentum means the MPC would be in no mood to cut rates sooner. The rupee hit fresh record lows as the dollar gained strength against its major crosses and also as geopolitical tensions in the Middle East were on the rise.
On the domestic front, data released on the domestic front showed inflation rose to 4.89% against an expectation of 4.9%. On the other hand, industrial production grew 5.7% in February as compared to growth of 3.8% in the previous month, suggesting that growth remains consistent in the manufacturing sector.
Whereas, volatility was curtailed following active intervention by the RBI. Latest data suggest that the RBI reserves have fallen a bit after it hit the highest level earlier this month at $648.6 billion.
This month, on the domestic front, except the inflation and industrial production number no other economic number is expected to be released. But this week’s FOMC policy statement will be important to watch; expectation is that the central bank could keep rates unchanged and it will be the commentary that will trigger volatility for the dollar.
For the week, in the first half volatility could remain low but in the latter half volatility for the rupee could be on the rise. We expect the USDINR (Spot) to trade sideways with a positive bias and quote in the range of 83.10 and 83.80.
Global Currencies
Dollar witnessed some buying interest at lower levels but gains were capped after data showed the US economy grew at its slowest pace in nearly two years in the first quarter. Weakness prevailed amid a surge in imports and small build-up of unsold goods at businesses.
GDP increased at a 1.6% annualized rate last quarter, the slowest pace since the second quarter of 2022. Excluding inventories, government spending and trade, the economy grew at a 3.1% rate after expanding at a 3.3% rate in the fourth quarter.
A significant slowdown in the labor market is not yet evident as latest data showed weekly jobless claims report showed initial claims for unemployment benefits fell 5,000 to a seasonally adjusted 207,000.
On the other hand, core PCE index rose marginally to 2.8% in March and higher cost of housing and utilities suggest that the Federal Reserve could keep rates elevated for a while.
This week, apart from the Fed policy statement market participants will be keeping an eye on the non-farm payrolls data that is likely to influence the dollar. We expect the Dollar Index to trade with a positive bias and quote in the range of 105.20 and 106.80.
(Gaurang Somaiya is a Forex & Bullion Analyst with Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)