By Dilip Parmar
Indian rupee marked the first weekly gain in three following rallies in the domestic equities backed by foreign fund inflows. The fall in crude oil prices and the expectation of a normal monsoon rain may drag inflation lower in the coming months. The month-end dollar inflows, the central bank’s intervention and lower crude oil prices could further support the rupee’s strength in the coming days.
Apart from the usual news flows, short-term traders should also eye on the Chinese Yuan for swing trades. A weakness below 7.10 Yuan will push the regional currencies lower and Rupee could also adjust with it.
Spot USDINR fell 10 paise to 82.57 after touching three months high of 82.82 on Monday. The technical set-up remains bullish on the daily chart but we are expecting profit booking before heading towards a psychological level of 83. It has support at 82.30, the 100 days simple moving average.
U.S. President Joe Biden and top congressional Republican Kevin McCarthy reached a tentative deal to suspend the federal government’s $31.4 trillion debt ceiling on Saturday evening but were unable to cheer market sentiments. The deal would suspend the debt limit through January of 2025 while capping spending in the 2024 and 2025 budgets.
In the week gone, the combination of fix-related greenback buying and higher Treasury yields after the PCE print, and comments from the Fed’s Loretta Mester, has put the dollar nearing the two-month high. US Treasury two-year yields climbed for an 11th straight session after data showed a pickup in inflation. The Federal Reserve Bank of Cleveland President Loretta Mester said she wouldn’t rule out another rate hike in June.
Traders this week penciled in at least another quarter-percentage-point rate increase from the Fed in the June meeting. Fed funds futures traders are pricing in a two-thirds chance of a hike, up from about 18% a week ago.
What to Watch
US markets are closed for Memorial Day. A note of caution and uncertainty will pervade the Fed’s Beige Book, with more districts likely expecting the outlook to deteriorate. May’s jobs report (Fri.) will present the Fed with its final opportunity to comment on the economy before the blackout period begins for the June 13-14 FOMC meeting.