Indian Rupee Shrugs Off Dollar Rally and Strengthens on S&P Outlook Optimism, GDP Data Eyed
Indian rupee strengthened to a near three-week high against the dollar on 20 August despite the US unit's broad rally as hopes of an upward revision of India's sovereign outlook by S&P increased flows into the country's government bonds, traders said.
USD/INR fell to 60.51, its lowest since 31 July, from the previous close of 60.75.
The pair had risen to a five-month high of 61.75 on 8 August, and at the low on Wednesday, the rupee was more than 2% stronger from there.
"The optimism is that S&P may revise its India sovereign outlook upward, and that has triggered fresh flows into the bond market," K Chandrangathen, chief forex trader at South Indian Bank, told IBTimes UK.
The rating agency's current outlook on India is negative and the expectations are that it will be raised to stable.
India Bonds
Traders in the bond market said in addition to the hopes of outlook improvement, the government move to cut back the borrowing target for the six months to September has also increased demand for the bonds.
With the country awaiting fiscal year first quarter GDP data later this month, expectation of a revival in the growth numbers is also helping the sentiment, traders said.
"There has been good inflow into the bonds market after the downsizing of the borrowing target. And now hopes of better GDP numbers is adding to the outlook revision optimism too" Hasan Reza, Economist at Altius Fincap Markets Ltd, told IBTimes UK.
The yield on the 10-year benchmark bond fell to a 20-day low of 8.48 on Wednesday, down 4 basis points from Tuesday's close, showing the strength of flows into the securities market.
India may have grown 5.94% from a year earlier in the three months to June, Reza estimates. It compares with the Q4-FY-14 print of 4.6%.
Dollar Rally
The dollar rallied across the board in Asia on Wednesday as the US housing market data released overnight surprised on the higher side.
The June consumer price inflation data came in line with expectations and the headline number held near the target rate of 2%, though there was a slight decline from 2.1% in June.
Dollar had rallied to a four-month high of 103.28 against the yen and an eleven-month high of 1.3285 against the euro, on Wednesday.
Most Asian currencies including the Chinese yuan, which has been rising against the dollar almost every day recently, weakened on Wednesday, tracking the broad dollar strength.
But the Indian unit stood apart, and is waiting for the GDP numbers, the S&P statement and more importantly, all what Prime Minister Narendra Modi had promised in his historic I-Day speech on 15 August.
Rupee Technical Outlook
The USD/INR pair seems to have 60.50 as the daily support line and a break below that will trigger fresh dollar selling, says Chandrangathen.
The pair has its next support at 59.90 and then at 59.49 ahead of a retest of the May low of 58.23.
On the higher side, 60.75 has turned a resistance now, and the next one is 60.03. After that, the pair will aim 61.20 ahead of a retest of the 8 August peak of 61.75
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