The Indian rupee is expected to trade in a range bound manner on Wednesday amid weak inflation data in India, rally in regional currencies, risk assets and lower crude oil prices.

The Indian rupee is expected to trade in a range bound manner on Wednesday amid weak inflation data in India, rally in regional currencies, risk assets and lower crude oil prices. Annual inflation rate in the country edged lower to a five-month low of 6.71% in July of 2022 from 7.01% in June, compared to market forecasts of 6.78%. “US$INR (August) is likely to trade in a range of 79.80-80.10” said ICICI Direct. Meanwhile, foreign investors have turned into net buyers of India’s financial assets which is likely to boost the local currency.

“The rupee depreciated against the US dollar on Friday, tracking a strong U.S. currency in the overseas market and rising crude oil prices. Although, in this holiday shortened week on the domestic front, we witnessed rupee in DGCX showed some strength against the dollar, while the dollar index continue to gain. Previous week, US CPI increased by a slower-than-expected at 8.5% followed by a 9.1% rise in June. Meanwhile WPI on the domestic front scheduled yesterday was reported at 15.18 against expectations of 15.63. Better than expected U.S. IIP data later in the day also supported the move in dollar index.”

“Positive data from the U.S. support the dialogue from Fed officials regarding a soft landing of the economy amidst the aggressive pace in interest rate. The euro gained some ground, after dropping earlier on data showing that German investor sentiment fell slightly in August on concerns the rising cost of living will hit private consumption. Europe is struggling with an energy crisis after imposing sanctions on Russia due to its invasion of Ukraine. Focus today will be on the UK CPI, EU GDP and U.S. Retail sales data. We expect the USDINR (Spot) to trade sideways and quote in the range of 79.35 and 79.75.

Indian rupee to open with up-gap to follow up last two days rally regional currencies, risk assets and lower crude oil prices. Some of the positive factors which are likely to support the rupee are:

– Sliding oil prices could help improve India’s external balance while bringing inflation under control.
– In addition, foreign investors have turned into net buyers of India’s financial assets, recently. They purchased a net 2.65bn and $277mn of local shares and bonds respectively on August 1-11, after reducing holdings by $27.72bn and $2.25bn respectively in the first seven months of 2022.
– RBI is expected to continue to defend the INR amid ongoing external uncertainty, capping upside room for USD/INR.
– Russia is considering purchases of China’s yuan, India’s rupee and Turkey’s lira for its wealth fund under a budget mechanism that uses excess income from energy sales.

On Friday, we have seen the pair briefly recover all losses to close with a 2 paise gain to 79.66. Technically, the pair is having resistance around 79.95 and support at 79.20.

After a holiday extended week, Indian equities and rupee are likely to open on a stronger note in line with the Asian markets. The markets seem to be out of commotion and absorbing a surprise rate cut and stimulus injection by China earlier this week that was driven by disappointing jobs, production, and sales data prints. Back home, a sigh of relief comes after wholesale inflation fell to its lowest in 5 months to 13.8% in July driven by sequential declines in prices of primary articles and manufactured products. Though it has declined, the limited moderation in WPI inflation suggests that the price pressures in the economy remain elevated.”

“For rupee, after touching 79.80 in the NDF yesterday, has retraced back close to 79.20 levels where it has shown some resilience to break on the downside in the past. After 9 consecutive months of outflows, having witnessed nearly $3 billion in foreign inflows so far in August despite global geopolitical and economic turmoil has been an achievement in itself and the biggest supportive factor for the rupee. As long as the pair remains in a consolidated range of 78.80 to 80.10, buy on dips and sell on upticks remains an ideal strategy to follow for near-term exposures. If the rupee breaks 80.10 levels, a further move of 1 to 1.5 rupee can be seen shortly after the breakout and if 78.80 is taken out, further strength seems limited to 78.20 levels.