Mr. Sriram Iyer, Senior Research Analyst at Reliance Securities
The Indian Rupee appreciated for a 2nd straight week against the dollar, supported by inflows for IPO and the dovish Fed chairman for U.S. monetary policy.
The Rupee strengthened 0.1% this week after rising by 0.1% in the previous week.
However, the Rupee could not sustain gains due to consistent dollar buying from state-run banks, likely on behalf of importers.
Possibility of the Reserve Bank of India buying dollars through also prevented the currency from appreciating sharply.
Additionally, several countries tightened restrictive measures as cases involving the virus' Delta variant increased and also kept appreciation bias limited.
On the data front, India's June retail prices rose at a slightly slower pace than in the previous month, but it remained above the central bank's tolerance ceiling for a second month on higher fuel and food prices.
Retail inflation stood at 6.26% in June from a year earlier, government data showed. The print lagged the 6.58% median forecast in a Reuters' survey of economists and was slower than May's 6.30% print.
India's industrial output growth pace in May eased on month as regional lockdowns in most states to contain the second wave of the coronavirus pandemic hurt activities.
Industrial output in May rose 29.3% on year. A Reuters' poll of economists had forecast 32% annual expansion in industrial output. Manufacturing output jumped 34.5% in May.
The Dollar was headed for a weekly gain on Friday, supported by investors' move towards safe haven appeal of the greenback as rising COVID-19 infections loomed over the pandemic recovery.
Solid U.S. data and a shift in interest rate expectations after the Federal Reserve flagged in June sooner-than-expected hikes in 2023 have put a floor under the greenback over the past month and made investors nervous about shorting it.
The gains came despite Fed Chair Powell reiterating this week that rising inflation was likely to be transitory and that the U.S. central bank would continue to support the economy.
Traders will be watching out for U.S. retail sale figures for June due later this session and looking for any reading on inflation and the strength of the recovery.
A dovish Fed will lend support to the markets, however, rise in Delta variant across certain countries could prompt investors to move towards the safety of the dollar and keep gains in check.
Therefore, some appreciation bias could be capped. At the same time FPI inflows into the equity markets and dollar inflows could lend support.
So, lack of any major triggers will keep the currency in small trading band.
On the economic calendar front, the key trigger could come from the European Central Bank Monetary Policy Meeting.
Recent statements from the officials suggest that they will continue to remain dovish, which will continue to remain supportive to Euro.
On the economic calendar front, home sales, building permits data from the U.S and German PMI number could move the markets next week.
Technically, the USDINR Spot pair holds a resistance zone near 74.60-74.88 levels where it holds a strong support near 74.30-74.25 levels. It could see marginal upside momentum in coming week where breakout above 74.85 is waited for further upside movement.
The USDINR Spot pair could trade in a range of 74.30-74.80 levels in coming week.
Internationally, on the charts, the Dollar Index is sustaining above 21-Daily Moving Average which is placed at $92.20 levels where above $92.30 could further see $92.85-$93.40 levels. Support is at $92.10-$91.50 levels.
Strategy for USDINR July futures: - Buy on dips in the range 74.40-74.50 with a stoploss at 74.20 and a target at 75.10.
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