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Calmness ahead of FOMC - HDFC Securities

Rupee likely to open right following overnight weakness in the dollar index. There will be some month end adjustment in forex market but the biggest driver for rupee movements will remain fund inflows and risk sentiments.

Investors focus will remain on today’s FOMC meet. We don’t see any meaningful moves on dollar crosses today as the outcome will come mid-night and investors will stick to their wait-and-see approach.

The bias is for a bid dollar given the risk of some modest hawkish bias from the FOMC. Indian rupee in line with other Asian peers depreciated against the dollar following risk averse sentiments. So far this week, spot USDINR has been resilient among Asian currencies and ended steady for the second day in row.

The pair closed at 74.47 with loss of 5 paise on Tuesday. USDINR is likely to consolidate in the range of 74.25 to 74.55 in today’s trade mainly because of foreign fund inflows in primary market. We could also see fund divert from China to India after recent regulatory crackdown in China.

IMF on Tuesday cut its economic growth forecast for India to 9.5%, lower than the 12.5% projected in April, for the fiscal year to March 31, 2022 as the onset of a severe second COVID-19 wave cut into recovery momentum. The dollar is heading for a second day of declines amid month-end rebalancing flows and as Treasury 10-year yields slide.

US Treasury 10-year yields drop 5.5bps to 1.23% Chinese yuan fell to lowest level since April 2019 after China’s regulatory crackdown will crimp investor appetite in the region. Speculation swirled that U.S. funds are offloading China and Hong Kong assets amid Beijing’s regulatory crackdown on sectors including education and internet platforms.

USDINR

Technical Observations:

* USDINR August futures ended on flat note for the second day in rows, indicating indecisiveness among traders ahead of the FOMC meeting.

* On Hourly chart, the pair has been consolidating around 21 EMA.

* Momentum indicators and oscillators are also weakening on hourly and weekly chart suggesting bearishness in the pair.

* USDINR August futures expected to trade in the range of 74.85 to 74.58 with negative bias following month end adjustments.

USDINR August Hourly Chart

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