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Rupee likely to open lower following higher dollar after US Inflation data  - HDFC Securities

Indian rupee expected to open lower as Dollar surges on expectations inflation will lead to Fed tightening sooner rather than later. Risk assets like stocks dropped, while safe havens such as the dollar rose. Chinese Yuan is on path higher by renewed euro weakness and that suggests it could rise above 6.50 before too long.

Weakness in Asian currencies will also weigh on Indian rupee in today’s trade. On Tuesday, spot USDINR marked third consecutive daily fall to 74.495 on back stronger dollar inflows through ongoing IPOs. Technically, the pair is not going anywhere since last couple of days in consolidating in the range of 74.60 to 74.30.

Global rating agency, S&P affirmed India’s credit rating at BBB- on recovery potential with outlook stable. It also forecasted India real GDP growth to rebound to 9.5% in 2022. Prices paid by U.S. consumers surged in June by the most since 2008, topping all forecasts and testing the Federal Reserve’s commitment to monetary support for the economy. The Bureau of Labor Statistics’ consumer price index jumped 0.9 per cent last month from May, up 5.4 per cent over June 2020.

Excluding the volatile food and energy components, the so-called core consumer price index rose 4.5% from June 2020, the largest advance since November 1991. US rates ended the day well higher across the curve, with the 10- and 30-year yields settling at 1.42% and 2.05%, respectively. Asian markets expected to open tad lower following overnight weakness in the Wallstreet after higher than expected reading of inflation.

The weak end to the day in US markets come ahead of Federal Reserve Chairman Jerome Powell's two-day mandated semiannual testimony on the state of monetary policy. Powell is expected to comment on the strong reopening, though will likely continue to suggest that inflation remains transitory. Elsewhere, Oil steady near 2018 high as report points to falling stockpile.

Technical Observations:

USDINR July futures has been consolidating between 75.10 to 74.30, the 38.2% to 61.8% Fibonacci retracement of 76.40 to 73.

The pair has been sustaining above 55 days exponential moving average.

Momentum oscillator, stochastic turned weak on daily chart indicating further consolidation.

The gap between + DI and –DI also narrowed and about to cross downward indicating short term weakness.

USDINR July futures expected to consolidate in the range of 74.30 to 75.10.

USDINR July Daily Chart

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