Yen falls to the lowest level in seven months; Rupee remains resilient

Rupee volatility continued to remain low following no major cues on the domestic front. Market participants have been keeping an eye on the global events that are triggering volatility for most of the currencies. Economic numbers from the US have been mixed but overall have beaten estimates that are leading to support the dollar at lower levels. Volatility for the currency has been curtailed by the RBI that has been ramping its reserves at lower levels and at the same time selling to keep the weakness in check. This week, on the domestic front, manufacturing and services PMI numbers will be released and better-than-expected data could support the currency at lower levels. We expect the USDINR (Spot) to trade sideways and quote in the range of 81.60 and 82.30.

Dollar rose against its major crosses despite a mixed set of economic data from the US. Few of the data released from the US were above estimates. Data showed U.S. consumer confidence increased in June to the highest level in nearly 1-1/2 years amid renewed labor market optimism, while business spending appeared to hold up in May, indicating the economy remained on solid footing despite fears of a recession. On the other hand, advance GDP data showed the US economy increased at a 2% annualized rate last quarter, revised up from the 1.3% pace reported last month. The revisions primarily stemmed from positive adjustments in exports and consumer spending, although they were partially offset by downward revisions in nonresidential fixed investment and federal government spending.

This week, from the US, manufacturing and services PMI numbers along with employment numbers will be important to watch. Fed meeting minutes will also be released, wherein market participants will be awaiting for cues from the other Fed officials on rate outlook. Better-than-expected economic numbers and a hawkish outlook from the Fed could extend gains for the dollar. We expect the dollar to trade with a positive bias and quote in the range of 101.50 and 103.20. 

Euro and Pound fell following broader strength in the dollar against its major crosses and as economic numbers from both the EZ and the UK were disappointing. But the Japanese Yen continued to remain weakest of the lot as it fell to the lowest level in seven months. The divergence between policies of the Bank of Japan and the Federal Reserve continued to keep the currency weighed down against the US dollar. Bank of Japan has maintained a dovish stance and that too kept the safe haven currency under pressure. We expect the USD JPY pair to trade with a positive bias and quote in the range between 143.50 and 145.20.

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