Rupee depreciated back to 81.60 levels this week as dollar rebounded from its recent low of 105.35 levels. Further, rupee slipped on disappointing macro-economic data and weak global market sentiments. Dollar edged up on hawkish statements from US Fed officials and upbeat retail sales and job data. Meanwhile, softening of crude oil prices and FII inflows into local markets prevented further depreciation in Rupee. During the November month so far, there has been inflow of INR 27700 crores into Indian equities.
Indian Rupee is likely to depreciate back till 82.40 levels in the coming week as dollar is regaining back its strength. Further, rupee may slip on pessimistic global market sentiments and disappointing economic data from country. India’s trade deficit has widened to $26.91 billion from $25.71 billion in September 2022. India’s inflation also eased to a three-month low of 6.77% in October 2022 but remained above RBI’s comfort zone. Dollar is gaining strength as US Fed officials statements signaled that Fed would continue to lift rates to combat inflation which is running hot. Fed is likely to reduce the size of rate increases in the coming future but it does not mean that it is close to pivoting away from raising rates. Moreover, yields are rising on anticipation that Fed will continue to remain on its path of tightening monetary policy
Market sentiments are hurt as US Fed official’s hawkish statements and strong economic data faded market zest about potential slowdown in rate hike. Further, market participants are worried that repercussion of geopolitical crisis and global monetary tightening to combat high inflation will weigh on economic outlook. Disappointing housing data from US and China signals housing market is crumbling. Additionally, UK unveils its budget and proposed £55 billion of spending cuts and tax increases over the next 5 years. The UK finance minister has said that economy was already in recession and set to shrink in 2023. Furthermore, European Central Bank sees growing risk of financial stability in the euro area and warns that the likelihood of a recession is rising.
Additionally, in the coming week manufacturing and services PMI data from major countries across globe are likely to show that activity in both sectors slowed down. Moreover, market participants will remain vigilant ahead of FOMC meeting minutes as it provides the in depth insights into the economic and financial conditions that influenced policymakers vote.
However, sharp fall in rupee may be prevented on persistent FII inflows and softening of crude oil prices. Oil prices are declining on growing concerns that high inflation and rising interest rates will slow global economic growth. Additionally, prices may slip further on worries that rising Covid-19 cases in China may lead to wider lockdowns and hamper economic activity. In addition to this OPEC has cut its forecast for global oil demand growth this year and next, citing economic headwinds. However, sharp downside may be cushioned on prospect of tightening supply in coming months due to OPEC+ decision to cut supply coupled with sanctions on Russian oil.
USDINR as long as it sustains above 81.00 levels it may rise further till 82.40 in the coming week. A break above 82.40 will open doors for 82.80 levels. USIDNR pair continues to make higher highs and higher lows
For Monday, rupee may depreciate amid strong dollar and weak global market sentiments. However, consistent FII inflows and decline in crude oil prices may prevent further fall in rupee. USDINR (Nov) is likely to trade towards the level of 82.05
