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Rupee likely to extend losses on stronger dollar - HDFC Securities

* Indian rupee expected to open slightly lower in line with other Asian currencies. However, rebound in global equities could restrict the gains in dollar index and might help local currency to reverse losses. Asian stocks look set to follow their U.S. peers higher as investors assessed the ability of the economy to sustain less stimulus and rising virus outbreaks.

* The Indian rupee declines by the most in three weeks along with most other emerging Asian currencies amid broad dollar strength. Spot USDINR rose 0.16%, most since July 19, to close at 74.43. Technically, spot USDINR is having resistance at 74.60 and support at 74.25. The pair is expected to consolidate in the range of 74.65 to 74.25 in coming days.

* India 10-year yields rise 1bp to 6.23%; 5-year yields up 1bp to 5.75%; yields; RBI last Friday announced draining liquidity from the banking system via variable rate reverse repos or VRRRs. The RBI will buy 250b rupees of bonds Thursday under its G-SAP program.

* A gauge of the dollar strengthened for a third day Tuesday, buoyed by higher U.S. Treasury yields. Among G-10 peers, the euro weakened for a sixth day, its longest losing streak since November; they yen and franc led losses. U.S. 10-year yields up 1.9bps to 1.34%; U.S. inflation data due Wednesday are expected to provide further clues on any potential Fed policy move. Elsewhere, Crude oil bounced back from a three-week low on bets that the global demand recovery will remain intact despite the fast-spreading delta variant.

* The Senate passed a $550 billion infrastructure plan that would represent the biggest burst of spending on U.S. public works in decades. The bipartisan 69-30 vote marked a significant victory for President Joe Biden’s economic agenda. The bill still faces hurdles in the House, which is scheduled to be on break until September 20.

USDINR

Technical Observations:

* USDINR August futures formed another Doji candlestick pattern after previous day’s Hammer candle indicating continuation of indecisiveness among traders.

* The pair closed at 20 days simple moving averages resistance.

* Momentum oscillator, relative strength index of 14 days period heading nor and placed at 46.63 expected to head higher in coming days.

* USDINR August futures has resistance at 74.51, the 50 days simple moving average and support at 74.23.

USDINR August Daily Chart

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