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USDINR OUTLOOK

Rupee marked its biggest weekly gain in seven, as the dollar index plunged and oil prices headed for losses, with investors now awaiting domestic inflation data next week. Moody’s Investors Service reaffirmed India’s ratings even as it cut the country’s growth forecast. Moody’s reaffirmed India’s ratings at Baa3 with a stable outlook, according to its media statement. “The credit profile of India reflects key strengths including its large and diversified economy with high growth potential, a relatively strong external position, and a stable domestic financing base for government debt.” “The stable outlook reflects our view that the risks from negative feedback between the economy and financial system are receding,” it said. India's trade deficit more than doubled over the year-ago period in August 2022 as exports fell and imports surged. According to commerce ministry data, India's exports fell 1.15% year-on-year to $33 billion in August even as imports rose 37% over the year-ago to $61.68 billion. That pegged the trade deficit at $28.68 billion.

The dollar index fell toward 108.5, retreating further from 20-year highs, as an increasingly hawkish outlook on European Central Bank policy weighed on the greenback. Bundesbank President Joachim Nagel said over the weekend that the ECB will need to continue raising interest rates if high inflation persists, with policymakers reportedly prepared to deliver another jumbo 75 basis point rate hike in October. Meanwhile, investors are also preparing for a key US inflation reading that could influence the Federal Reserve’s rate hike plans. The US CPI due for release on Tuesday is expected to ease from 8.5% in July to 8.1% in August year-over-year, and a surprise to the upside could drive a fresh dollar rally as it would support further tightening from the Fed.

India Services Activity Grows More than Expected

The S&P Global India Services PMI increased to 57.2 in August 2022 from July’s four-month low of 55.5, and above the market consensus of 55. The latest reading was the 13th straight month of expansion in the sector, amid a faster rise in both output and new orders, while employment rose to the fastest pace in over 14 years. On the price front, input price inflation eased to an 11-month low. Meanwhile, output cost inflation was solid and broadly similar to that seen in July. Looking ahead, sentiment strengthened to an over four-year high, amid ongoing improvements in demand and planned marketing.

India Trade Gap Widens in August

India's trade deficit rose to USD 28.68 billion in August of 2022 from USD 13.81 billion in the same period last year, a preliminary estimate showed. Imports jumped by 31% to USD 61.68 billion whereas exports decreased by 0.8% to USD 33 billion.

India Manufacturing Growth Stays Robust

The S&P Global India Manufacturing edged down to 56.2 in August 2022 from July’s 56.4, beating the market consensus of 55, signaling the second-strongest expansion in the sector since last November. Both output and new orders expanded at the fastest pace since November, and new export orders rose at a faster rate. At the same time, input purchasing continued to increase, amid a third consecutive improvement in supplier performance. Employment increased at a slower pace, with backlogs of work accumulation the fastest since November 2020. On the price side, input cost inflation slowed to a 12-month low, due to a softer rise in commodity prices while output prices little changed. Finally, sentiment strengthened to a six-year high on hopes of stronger sales.

India GDP Growth Below Expectations in Q2

The Indian economy expanded 13.5% year-on-year in the second quarter of 2022, the most in a year but less than market forecasts of 15.2%. Gross value added increased faster for agriculture, forestry & fishing (4.5% vs 2.2% in Q2 2021); electricity, gas, water supply & other utility services (14.7% vs 13.8%); financial, real estate & professional services (9.2% vs 2.3%) and public administration, defence & other services (26.3% vs 6.2%). On the other hand, a slowdown was seen for mining & quarrying (6.5% vs 18%); manufacturing (4.8% vs 49%); construction (16.8% vs 71.3%) and trade, hotels, transport, communication & services related to broadcasting (25.7% vs 34.3%). On the expenditure side, household consumption accelerated (25.9% vs 14.4% in Q2 2021) and government expenditure rebounded (1.3% vs -4.8%). Meanwhile, gross fixed capital formation slowed (20.1% vs 62.5%) and net foreign demand contributed negatively to growth, as exports rose 14.7% while imports advanced at a faster 37.2%.

India Wholesale Inflation Below Forecasts

The annual wholesale price inflation rate in India fell to 13.93 percent in July 2022 from 15.18 percent in the prior month and less than market estimates of 14.2 percent. This was the lowest reading since February, amid a slowdown in prices of both manufactured products (8.16 percent vs 9.19 percent in June) and basic metals (11.12 percent vs 12.09 percent). Also, prices of primary articles moderated further (15.04 percent vs 19.22 percent) amid a marked slowdown in the cost of food (10.77 percent vs 14.39 percent). Meantime, inflation of fuel and power accelerated (43.75 percent vs 40.38 percent). On a monthly basis, wholesale prices fell 0.13 percent in July, after a revised 0.65 percent drop in June.

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USDINR on NSECD is currently trading near 79.78. It forms the Deep Crab Harmonic Pattern on the weekly chart. Prices are currently trading above the 50-day moving average and above the 200-day moving average. Ichimoku indicators suggest prices are currently in the positive zone. RSI suggests prices are currently in the overbought zone. Prices are expected to trade with less volatility in the coming trading sessions. Prices are expected to trade with bearish sentiments as the stochastic oscillator is mirroring a decrease in strength in the prices and is endorsing pressure in the coming trading sessions.

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