Mr. Sriram Iyer, Senior Research Analyst at Reliance Securities
The Indian Rupee depreciated against the U.S. Dollar on Friday on worries over China Evergrande Group's debt crisis impact.
The Rupee ended at 73.70 compared with 73.64 in the previous session.
For the week, the local un it weakened by 0.3% against the dollar, amid weak risk appetite and as long-term U.S. yields moved above 1.4% on anticipation of withdrawal of policy support.
However, constant inflows from equities ensured that a sharp selloff was contained this week. Indian equities continued to outperform their regional peers, with the benchmark BSE Sensex ending at a fresh record high and logging its fifth consecutive weekly rise.
EM other Asian currencies were volatile in a week but remained weaker against the U.S. Dollar and weighed on the local unit this week.
The Dollar Index was this week.
Initially the greenback moved higher after the U.S. Federal Reserve signalled a sooner-than-expected interest rate hike and easing of its bond purchases by the middle of next year.
The slight hawkish tilt was signalled in a new policy statement and economic projections that showed 9 out of 18 Fed officials ready to raise interest rates in 2022 in response to rising inflation.
The Fed's dot plot now shows that 3 officials now expect a 50-basis-point rate hike next year, 6 expect a 25- basis-point increase, and 9 did not forecast any change.
At the June meeting, seven of the 18 members had predicted rates would increase in 2022.
A drawdown of the central bank's $120 billion in monthly bond purchases could begin after the Nov. 2-3 policy meeting if U.S. job growth through September is reasonably strong, Fed Chair Jerome Powell said in a news conference.
Additionally, the benchmark 10-year bond yields spiked this week over 1.4% for the first time since mid-July this year and weigh on sentiments.
The yield is an indicator of market expectations about real inflation and how quickly the Fed will have to react to curb pressures.
Meanwhile, policymakers at the BoE voted unanimously to leave its main interest rate unchanged at a record low of 0.1% and opted to stick to its asset purchase target of £875 billion ($1.2 trillion).
But the case for policy tightening appeared to gain some momentum, as couple of members voted for an early end to the BoE 's program of government bond purchases.
However, the index gave up some of it gains amid relief that China's debt-burdened Evergrande may pay interest on a domestic bond, easing fears that the property giant's troubles might hit the global economy.
Looking ahead, the benchmark Brent crude contract was at $77.51 per barrel, hovering near its highest level in over two-months and may keep the rupee under pressure over the short term.
We continue to remain alert of the Brent contract and every uptick towards $80 will make oil importers nervous. All in all, we are bracing for periods of increased volatility.
Markets could face pressure from the uncertainty lingering around the potential risks from the debt crisis at China Evergrande Group.
At the same time, the increase in bond yields alongside equites suggests confidence among investors that the economic recovery will not be derailed by the accommodation withdrawal by central banks.
So, the depreciation bias could be capped.
In the overseas markets, the dollar could now track the economic calendar.
The important macroeconomic data releases next week are U.S GDP, Core Durable Goods and keenly tracked PCE price index by the Federal Reserve.
On the charts, the USDINR Spot pair could find resistances at 73.95 and 74.25. Support is at 73.55 and only a sustained trade below could witness 73.00 levels.
In the overseas markets, technically, the Dollar Index supports are at $92.95 and $92.45 and a break below both could levels could see a bearish momentum up to $92.00 levels. Resistances are at $93.60 and $94.10.
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