Rupee appreciated this weekend mainly on dovish tone of Fed as it is likely to take considerable time before raising interest rate.
Today rupee depreciated due to buying side pressure as the currency came near 61-61.10 range after two weeks. But there doesnt seem a strong macro fundamental that outweighs micro and pull rupee up.
Rupee traded near to 61.70 before the Fed meet when market was expecting Fed to change the estimated time for interest rate hike. But, after dovish tone of Fed emerging currencies along with major currencies appreciated yesterday.
Now, apparently there is no major threat to rupee that could bring sudden fall as fundamentally the currency is sound, unless unexpected events occur.
If we look at the micro factors the economy is doing quite well. At the beginning of the month manufacturing PMI fell but continued expansion at 51.0 on the other side service PMI expanded at 51.6 from 50.6. Inflation is also cooling down with falling commodity prices. In next week release CPI and WPI are expected at 7.20% and 3.30% against 7.80% and 3.74% earlier. Industrial Production is expected to show near to 2 percentage point improvement from 0.5%.
RBI has also been building strong fx reserve to fight against volatile movement and keep currency rate stable. RBI has built reserve of $314.18b through market purchase and cross market facilities.
In the three-month period between July, August and September the foreign institutional investors (FIIs) have pumped in an aggregate of Rs 79,149 crore into Indian equities and debt. While the net inflow into equities stood at Rs 23,642 crore in the three months and into debt amounted to a high of Rs 55,507 crore. Even the foreign direct investments (FDI) during the period went up between June and August rising by 65 per cent (over the corresponding period last year) to Rs 7,806 crore. The government received 99 FDI proposals in the three-month period out of which it approved 55 and rejected 16.
Confidence in Indian economy is reinstated by strengthening fundamentals and we may not see heavy depreciation in rupee in near time. The currency is likely to remain in range in coming days.
With the efforts of Government if export activities gains momentum then it may further support the rupee. Low oil prices are already favoring the currency.
Next week there are some important U.S. data releases like retails sales, ppi and consumer sentiments but it may not bring major change in INR.
We may see range bound rupee movement in next week with appreciation bias as domestic fundamentals are expected to strengthen.