The Indian rupee continued its upward trend, marking its second consecutive weekly gain and becoming the best performer following the Chinese yuan. This positive trend was driven by foreign fund inflows and an improvement in risk appetite. The rupee settled just above 82 after gaining almost 1% in value.
Looking ahead, the rupee could continue its positive trend this week, supported by risk-on sentiments and foreign investment. The spot USDINR has a support level at 81.30, which is a rising trendline connecting the previous swing lows of 78.49, 79.03, and 80.88, and a resistance level at 82.55.
Last week, the S&P 500 index gained 1.9%, marking its first weekly gain in a month. The dollar’s strength, measured by a gauge, posted its first weekly loss since January, as optimism about China’s growth and an eventual peak in US policy rates sent US shares sharply higher. The semi-annual testimony of Fed Chair Powell this Tuesday may keep the appetite for selling the dollar contained after eroding February gains.
Investors can earn about 5% in US Treasuries, the highest since 2007, at the start of March, which may act as a strong headwind for most risk assets. The yields on 10-year US Treasuries ended at 3.95%, pulling back from 4.09% hit on Thursday for the first time since November.
Traders in US interest-rate options are purchasing cheap hedges that could pay off big if the Federal Reserve returns to 50 basis-point rate hikes at its upcoming policy meeting later this month. In the past month, traders have gone from betting that the Fed’s benchmark rate would peak around 5% in July to betting it will peak at about 5.5% in September. This week, key events include the US Jobs data, Powell’s testimony, and Central Bank decisions in Japan, Australia, and Canada.
It is challenging to get a clear read on where the US economy is and where it is headed due to the quality of recent data. Key labor indicators in the upcoming week, including nonfarm payrolls (Fri.), ADP (Wed.), and JOLTS (Wed.), will shed light on whether January’s across-the-board strength was a fluke or the start of a trend. A hawkish testimony by Powell along with a strong job market report could increase demand for safe-haven assets, lifting up the dollar and US Treasury yields.
The positive trend in the rupee can be attributed to foreign fund inflows and an improvement in risk appetite. Foreign investors have invested in Adani group’s stock, and the appointment of a committee by the Supreme Court to investigate the group has also improved sentiment. Additionally, the appointment of a new finance minister has brought stability to the market.
The Indian government’s efforts to improve the country’s infrastructure and implement reforms have also boosted confidence. These efforts have been reflected in the recent budget, which included measures to boost spending on infrastructure, agriculture, and health care, among other sectors.
The rupee’s rise has also been supported by a decline in oil prices, which is positive for India, as it is a major importer of oil. The country’s foreign exchange reserves have also increased, providing a cushion against external shocks.
In conclusion, the Indian rupee has marked its second weekly gain and is the best performer following the Chinese yuan, driven by foreign fund inflows and an improvement in risk appetite. The positive trend is expected to continue this week, supported by risk-on sentiments and foreign investment. However, key events such as the US Jobs data and Powell’s testimony could impact the trend.
