Dollar Index extends losses for another week – CaFE Invest News

By Gaurang Somaiya

Volatility for the rupee continues to remain low following lack of cues on the domestic as well as on the global front. On the domestic front, IPO related flows supported the rupee and extended gains in the intraday session. At the same time, weakness in the dollar index also lent support to the rupee. No major economic data was released on the domestic front and that too kept the volatility in check for the rupee. Dollar rose mid-week ahead of the FOMC meeting minutes that showed all participants agreed that the Committee was in a position to proceed carefully.

The minutes further mentioned that participants noted tightening of monetary policy would be appropriate if incoming information indicated progress toward the Committee’s inflation objective was insufficient. But gains were capped after data released from the US showed durable goods order contracted by 5.4% as compared to growth of 4.6% in the previous month. Most market participants remained on the side lines as US markets remained shut on account of Thanksgiving Day holiday. Dollar did witness swings after economic data releases from the US were marginally disappointing.

This week, on the domestic front, no major economic data is expected to be released but market participants remain cautious ahead of the RBI policy statement that is scheduled in the first week of December. Expectation is that the central bank could keep rates on hold but commentary is likely to provide cues to the currency that has been stable for the last few weeks. Any major comment on inflation and growth of the economy could influence the rupee.

Volatility for the local currency has
been in check following active RBI intervention, Latest data released by the RBI showed reserves dipped by $462 million and total currently stand at $590.32billion. We expect that the USDINR(Spot) could continue to trade sideways and quote in the range of 83.05 and 83.50.

Euro and pound too were volatile after the release of preliminary manufacturing and services PMI. Data showed German manufacturing was slightly disappointing and services came in line with estimates. Pound in the intraday session gained after both manufacturing and services PMI rose above estimates. Data showed manufacturing in the UK could rise to 46.8 as compared to 44.8 in the previous month.

On the other hand, services PMI is expected to rise to 50.5 in November as compared to 49.5 in October. The Pound could trade higher also on reports that suggest that the central bank would refrain from its discussion on rate cuts following concerns over upside in inflation on back of geopolitical tension in the Middle East.

This week, from the US, consumer confidence, prelim GDP, core PCE index and manufacturing PMI number will be important to watch. Better-than-expected economic data is expected to keep the dollar supported at lower levels. From the EZ, preliminary inflation and final manufacturing PMI and similarly from the UK, final manufacturing number will be key to watch and determine a view for the major crosses.

(Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services. Views expressed are the author’s own. Please consult your financial advisor before investing.)