RBI’s unchanged policy stance could lead to a test of 74.00 USD / INR support
The huge rise in domestic stocks and the RBI’s unchanged monetary policy stance calls for a test of 74.00 support for the. The currency pair tested a low of 74.09 in the early hours of trading today and we could potentially see a test of support of 74 in the coming week as RBI intervention could limit its fall.
The resumption of the rupee’s exchange rate from early July 2021 calls on the Central Bank to maintain a lower bias to maintain the competitiveness of exports. As external demand increases, it is all the more important for the Central Bank to intervene at levels close to 74 to make exports competitive in order to stimulate export growth. We believe that during this month the Rupee will trade between 74.00 and 74.80 with a neutral bias. Any breach of the 74.00 resistance level for the Rupee will remain unsustainable.
The RBI kept the repo rate unchanged at 4% as expected and maintained its accommodative policy. The MPC has said it will continue its accommodative stance for as long as necessary to support a struggling economy hit by the covid-19 pandemic. Faced with the threat of a probable third wave of the pandemic, the Central Bank has assured that it will remain vigilant against the background of rising infections in some parts of the country. RBI increased the estimate of retail inflation for the current year to 5.7% from 5.1% projected earlier while keeping the forecast for GDP growth for the year at 9.5%. The announcement of the policy has no impact on the rupee exchange rate.
As dollar Treasury yields languished pending U.S. employment data to provide clues to the pace of U.S. monetary policy tightening, global equities were dragged down by earnings reports solid. Strong corporate earnings allayed concerns about the covid-19 pandemic, which helped prop up stocks.
Inflows of foreign funds are expected to offset the global strength of the dollar, following comments from some US Federal Reserve officials on the reduction in monetary policy stimulus. Mixed global indices have also led to cautious sentiments as investors take into account mixed economic data from the United States and official comments from the Federal Reserve that they are on track to reduce stimulus support. US bond yields edged up after a member of the Federal Reserve urged an early rate hike in 2023. The Fed vice chairman signaled that the central bank may announce cut bond purchases later this year, noting that inflation is expected to exceed the Fed’s 2%. goal.
fell for the fourth consecutive session to currently trade at $ 71.40 / bbl. Oil futures are trading low as the rapid spread of the Delta variant of covid-19 in the most consuming countries will reduce the demand for fuel. The United States and China are seeing an increase in the number of coronavirus cases amid the highly contagious Delta variant threatening demand during the peak summer driving season. Oil futures also fell after EIA data showed a surprise increase in U.S. crude inventories last week, which was the biggest increase since the first week of May 2021.