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Rupee to witness high volatility, set to trade in 70.80-72.20 range

Inflation and industrial production numbers will keep forex investors' interest alive.

ET CONTRIBUTORS|
Updated: Dec 14, 2018, 03.39 PM IST
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Inflation and industrial production numbers will keep forex investors' interest alive.
The rupee broadly consolidated in a wide range of 70.30 and 71 (Spot) ahead of the key events that were lined up both on the domestic and the global front.

The RBI in its recent policy meeting held rates unchanged, but decided to cut SLR by 25 bps each month until guiding it towards the 18 per cent mark. SLR stands at 19.5 per cent.

The central bank cut its inflation forecast for the coming year on expectations that food and fuel prices could cool off, extending gains for the currency.

The dollar traded in a range on fresh speculation that the Federal Reserve later this month will consider raising rates, but this could be the last before it hits the pause button on its tightening cycle.

Global crude oil prices rallied 4 per cent after OPEC’s decision to reduce oil production by a total of 8,00,000 bpd while non-OPEC nations, led by Russia, are reportedly adding another 4,00,000 bpd of cuts.

Private payrolls data showed that the sector added 1,79,000 jobs in November compared to 2,25,000 jobs in the previous month. On the other hand, non-farm payrolls showed that the economy added 1,55,000 jobs last month, below forecast of 200,000 jobs, while the jobless rate was at a 49-year low of 3.7 per cent.

China’s trade surplus with the US rose to a new high of $35.5 billion last month as businesses raced to prepare for a threatened increase in tariffs over the New Year. China’s exports to the US rose by 9.7 per cent year on year to $46.2 billion in November while imports dropped 25 per cent to $10.6 billion.

The pound has risen marginally this week, but consolidated in a range as most market participants remained cautious ahead of the important Parliamentary vote on Brexit. China's overall trade was at $44.7 billion surplus in November, up from $35 billion in the previous month.

USD-INR
The rupee consolidated in a broad range during the week, closing flat at 71.22. Last week, on the domestic front, the RBI policy meeting was one of the most important events to watch out for.

The RBI retained its ‘calibrated tightening’ stance as was expected and decided to trim its inflation forecast to 2.7-3.2 per cent by March-end from its prior view of 3.9-4.5 per cent.

This week, market participants will be keeping an eye on the RBI board meeting and the economic calendar. Inflation and industrial production numbers will keep investor interest alive. The final picture on Assembly election results of five states that went to poll last week will be visible on Tuesday, which could keep the rupee very volatile. For the week, we expect the USD-INR to quote in the range of 70.80 and 72.20.

EUR-INR
Euro in the last couple of weeks has been consolidating in a range of 1.1250 and 1.1450 and volatility has been low as investors are waiting for more cues on the Brexit front as well as ahead of the important ECB policy statement.
From the Euro zone, economic numbers have been in line with expectations and reaction as such has been muted on the currency. For this, focus will be on the ECB policy statement. Expectations are that the ECB President could give some cues on when the central bank expects to raise rates and at the same time what could be the impact of Brexit on the Euro zone economy. EUR-USD pair is expected to quote in the range of 1.13 and 1.1520.

GBP-USD
After being under pressure for a month, the pound rose marginally against the dollar ahead of the important parliamentary vote on Tuesday. The pound has been one of the volatile currencies, but rather than economic numbers, negotiations on the Brexit deal have kept most market participants edgy.

UK Prime Minister Theresa May battles to get the Brexit deal she negotiated with the European Union through parliament. The treaty faces heavy opposition from lawmakers both for and against Britain leaving the bloc. We expect volatility for the pound to continue to remain high and quote in a wide range of 1.1280 and 1.1290

JPY-INR
Japanese Yen continues to consolidate in a broad range of 112.20 and 114.20 since the start of November, but gained partially primarily on back of safe buying for the currency. Uncertainty on trade war and the Brexit front has attracted buying for the currency. In the recent past, the yen fell against the dollar after the Bank of Japan dismissed the chance of a near-term interest rate hike.

BOJ governor said the central bank will “of course” exit ultra-loose policy when inflation approaches its 2 per cent target. But he stressed that it was premature to reveal the strategy now as more time is needed to hit the price goal. From Japan, final GDP will be the only important data to watch for, but the yen could attract safe haven buying ahead of the important Brexit vote.

(The writer is AVP-Commodity Research, MOFSL)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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