Mr. Sriram Iyer, Senior Research Analyst at Reliance Securities
The Indian Rupee ended weak on Friday against the dollar on foreign banks' dollar purchases related to equity-related outflows.
The Rupee ended at 74.41 compared with 74.29 in the previous session.
However, the Rupee remained flat this week and remained marginally weak this July as data and fundamentals took a backseat after the highly transmissible delta variant of the coronavirus led to a surge in infections in several Asian countries prompting authorities to reintroduce restrictions.
For the week, the currency was largely flat as all eyes were on the Fed meeting. The rupee weakened by 0.1% in July, after trading in a thin 74.22 to 74.54 band. It had weakened by 2.4% in June.
Other Asian currencies were weaker in July and remained weak for the week and weighed on sentiments back home.
India's foreign exchange reserves fell for the first time in five weeks to $611.15 billion as on Jul. 23 from a record high of $612.73 billion in the previous week, data from the Reserve Bank of India showed.
Foreign currency assets fell to $567.63 billion from $568.75 billion in the prior week.
India's fiscal deficit in the first three months of this financial year that started Apr. 1 totalled 2.74 trillion rupees, sharply narrowing from 6.62 trillion rupees in the comparable year-earlier period, government data showed.
Fiscal deficit for April-June was 18.2% of the government's estimate for this financial year. The deficit was 83.2% of budget aim in the same period last year.
The U.S Dollar gave up gains to end weaker this week on a dovish Fed.
The U.S. Federal Reserve policy statement said the U.S. economic recovery remains on track despite a rise in coronavirus infections and flagged ongoing talks around the eventual withdrawal of monetary policy support.
However, the dollar turned negative after Powell in a subsequent news conference said the rising cases of the Delta variant may weigh on a recovery in the labour market and that the central bank was still far away from considering raising interest rates.
Reinforcing Powell's views, data showed the U.S. economy grew at a 6.5% annualized rate last quarter, below a forecast for an 8.5% rise by economists in a poll.
Additionally, initial jobless claims declined by 24,000 to 400,000 vs. a forecast of 380,000 new claims in the week ended July 24, the government said.
Meanwhile, the personal consumption expenditures (PCE) price index rose 0.4% in June after advancing 0.5% in May.
In the 12 months through June, the core PCE price index shot up 3.5%. The core PCE price index increased 3.4% year-on-year in May.
The Euro, the Sterling and the Japanese Yen appreciated against the Greenback this week.
With the Fed out of the way, investors could look to cues from the Nonfarm payroll number next week.
The dovish Fed and improved risk appetite could keep the dollar weaker and lend support to our currency.
Apart from nonfarm payroll, investors will look to cues from the Bank of England Monetary Policy next week.
Back home, the local unit could look to the dollar inflows into the equity markets.
July has witnessed a net outflow from the equity markets, but with recent success in IPO's, more inflows are possible in august, which will keep Rupee depreciating bias limited atleast in the short run.
Additionally, with economy re-opening in India risk appetite could improve and lent support.
However, investors will be wary of rising crude prices.
Investors will also look to cues from the RBI's monetary policy meeting next week.
Technically, the USDINR Spot pair USDINR Spot on a weekly chart is trading in Falling Channel formation where upper band resistance holds near 75.02 level where it could see some minor correction up to 73.70-73.40 levels in coming month.
However, if the pair sustains above 74.55 level could see a bounced back up to 74.86-75.10 levels. So, the trading range for the pair will be 73.70-75.00 levels.
Internationally, on the charts, the Dollar Index Dollar Index holds a support near $91.55-$90.90 levels from where it could bounce back up to $92.80-$93.20 levels. It could see a sideways momentum in coming week.
Strategy for USDINR August futures: - Buy on dips in the range 74.30-74.40 with a stoploss at 74.00 and a target at 75.00.
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