Rupee to appreciate amid retreat in dollar, rise in risk appetite in domestic markets; USDINR resistance at 78

Rupee to appreciate further this week till 76.90 amid retreat in dollar and rise in risk appetite in the domestic markets. However, further gains may be prevented as investors fear that rising crude oil prices will hurt trade and current account deficit

By Raj Deepak Singh

Rupee appreciated last week majorly on the back of weak dollar and rebound in domestic markets. Meanwhile, sharp gains were prevented on persistent FII outflows and elevated crude oil prices Dollar index retreated from its recent high amid decline in US treasury yields and disappointing economic data from country. However, sharp downside was cushioned on risk aversion in the global markets, concern over slowdown in global economic growth and hawkish statement from Federal Reserve Chairman Powell. He said central bank would notch up interest rates as high as needed taking rates above neutral (rate at which economic activity is neither simulated nor constrained) to curb soaring inflation

We expect rupee to appreciate further this week till 76.90 amid retreat in dollar and rise in risk appetite in the domestic markets. However, further gains may be prevented as investors fear that rising crude oil prices will hurt trade and current account deficit. Additionally, investors will remain vigilant ahead of major economic data across globe. Manufacturing and Services PMI data from major countries are likely to show that activity in sector’s slowed down fuelling concerns over global economic slowdown.

Furthermore, US Core PCE Price index is forecasted to show that inflation remained elevated making case stronger for Federal Reserve to act more aggressively in raising interest rates USDINR (May) is facing strong resistance near 78.00 level as long as it sustains below this level it may correct till 76.90 this week.

For Monday Rupee may continue with its appreciation mode amid retreat in dollar and bounce back in local markets. However, sharp gains may be prevented on persistent FII outflows and surge in crude oil prices. As long as USDINR sustains below 77.75 it may slip further till 77.30 level

(Raj Deepak Singh is an Analyst – F&O, Currency, and Commodities at ICICIdirect. The views expressed are the author’s own. Please consult your financial advisor before investing.)