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Rupee - October 23, 2021 - Weekly Wrap - Reliance Securities

Posted On: 2021-10-23 14:47:09 (Time Zone: IST)


Mr. Sriram Iyer, Senior Research Analyst at Reliance Securities

The Indian Rupee appreciated this week against the U.S. Dollar as foreign banks continued to sell the greenback prompting an exit of long positions on the dollar.

The unit strengthened by 0.5% this week.

For the session the currency ended flat this Friday.

The Rupee ended at 74.89 compared with 74.86 on Thursday.

The currency has remained extremely range bound over the last 2 trading sessions.

Meanwhile, the rupee's focus throughout the week was on the pickup in inflation expectations due to surging commodity prices. The nearest Brent crude contract surged to a three-year high.

In other news, the RBI's MPC minutes showed that members of the rate-setting panel raised concerns over inflation amid global price shocks.

However, the minutes also showed that India's central bank chief believes the need for continued monetary support for the recovery of the pandemic-hit economy.

Meanwhile, data from RBI showed that India's foreign exchange reserves rose for a second straight week to $641.01 billion as on Oct. 15 from $639.52 billion in the previous week.

The reserves had hit a record high of $642.45 billion as on week ended Sep. 3.

Foreign currency assets rose to $577.95 billion from $577.00 billion in the prior week.

In the overseas markets, the dollar index ended marginally weaker.

Downside was capped after the decline in the number of Americans filing for unemployment benefits to one-and-a-half-year lows suggested that the broader labour market recovery remained on course, reinforcing expectations of an announcement next month by the Fed that it will begin reducing the pace of its monthly bond purchases.

Additionally, Federal Reserve Chairman Jerome Powell said the U.S. central bank should begin reducing its asset purchases soon but should not yet raise interest rates.

Powell said employment is still too low and high inflation will likely abate next year as pressures from the COVID-19 pandemic fade, even as many market participants are concerned that rising price pressures will last longer than policymakers believe.

OUTLOOK

Looking ahead, markets could remain range bound in the coming week as investors continue to anticipate the Fed's tapering next month.

Rising U.S. bond yields and rebounding U.S. Dollar offset support from concerns over rising inflation and China's troubled property sector.

Consistent rise in crude oil prices leading to higher inflation will be a concern and keep appreciating bias limited.

However, the Fed meeting the first week of November, but ahead of the Fed meeting, the ECB is expected to meet next week.

Investors expect the Fed and European Central Bank will keep rates low for too long.

On the macro economic front, U.S. GDP, jobless claims, durable goods orders and the Fed favoured PCE Price index will be the driving factors for prices.

Across the Atlantic, GDP data from Germany will also move the markets.

On the macro economic front, U.S. PMI and jobless claims data will be the major trigger for the currencies.

On the charts, the USDINR Spot pair has bounced back from 74.65 levels where breakout above 75.00 will continue its bullish momentum up to 75.28-75.55 levels. However, a trade below could pull the pair to the support zones 74.48-74.55 levels.

In the overseas markets, technically, the Dollar Index is trading below its 21-Daily Moving Average at $93.95 level, which could pull the index towards the support zones at $93.20-$92.80 levels. Resistance zones is at $93.80-$94.00 levels.


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