Rupee to appreciate this week till 77.30 amid weak dollar, rising risk appetite in domestic markets

By Raj Deepak Singh

Rupee appreciated last week amid retreat in dollar and rise in risk appetite in the domestic markets. Meanwhile, consistent FII outflows and surge in crude oil prices prevented further gains. Dollar index eased amid decline in US treasury yields and disappointing economic data from country. US business activity slowed in May as higher prices cooled demand for services while renewed supply disruption hampered production at factories. Additionally, a second reading of Q1 US GDP came in worse than the first reading with contraction at an annual rate of 1.5%. Further, greenback slipped on dovish statement from Atlanta Fed President Bostic, who backed the idea of a Fed pause later this year.

However, further downside was cushioned as FOMC meeting minutes showed that most of the policymakers are in view that central bank should hike rate by 50bps in June and July. We expect rupee to appreciate further in this week till 77.30 amid weakness in dollar and rise in risk appetite in the domestic markets. Further, traders speculate that US Fed might slow its tightening cycle in second half of the year and assess the effects of policy firming. However, further gains may be prevented as investors fear that rising crude oil prices will hurt trade and current account deficit.

Additionally, investors will remain vigilant ahead of major economic data from US and India. India’s GDP data is likely to show that economy expanded at slower pace in Q4 FY22. It is likely to grow by 4% in Q4 FY22 compared to 5.4% in same quarter previous year. Additionally, India’s Manufacturing and Services PMI data are forecasted to show that activity in both sector slowed down. USDINR (June) as long as it sustains below 78.10 it may correct till 77.30 in this week.

(Raj Deepak Singh is an Analyst – F&O, Currency, and Commodities at ICICIdirect. The views expressed are the author’s own. Please consult your financial advisor before investing)