Rupee has relatively performed better than its Asian peers and is expected to trade in the range of 81.5-82.25/$ in the near term, a report released by Bank of Baroda said. It added that the domestic currency was bolstered by improvement in the external outlook, FPI flows in the green, and support from lower crude prices in the month of April.
Global currencies in April
According to the report, global currencies continued to garner strength against the dollar. The weakness in the Dollar index was evident as it declined by 0.4 percent amidst the macro developments surrounding the US market, it said, further adding that a weaker than anticipated growth in the US economy kept the investors on edge.
The report informed that the annualized GDP for Q1 was noted at 1.1 percent against a growth of 2.6 percent in the last quarter. The moderation was led by a slowdown in nonresidential fixed investment and private inventory investment. Moreover, the core PCE price index, the Fed’s preferred gauge of tracking inflation also remained elevated at 4.6 percent in March 2023, it added.
The report stated that most of the global currencies registered gains against the dollar with Korean won (2.7 percent) and GBP (1.5 percent) contributing the most.
It also predicted that for the 7th time in a row, ECB will lift rates in the forthcoming meeting with markets anticipating a rate hike converging to a 25 bps increase instead of a 50 bps increase. These expectations are based on conflicting signs emerging from the economy, with the Euro zone escaping recession and expanding by 0.1 percent (quarterly basis) in Q1 with advances seen across France, Italy, and Spain. The growth was boosted by strong export sales in these regions and offsetting subdued household demand. However, growth stagnation in Germany remained a concern, it noted.
Meanwhile, the Japanese yen also climbed up by 1.4 percent. BoJ policymakers unanimously agreed to continue with the ultra-low interest rates, in line with expectations and maintained the status quo on the yield curve control (YCC) policy. Even as Japan’s inflation remains above the BoJ’s target range of 2 percent, the Governor noted the inflationary pressure is more transitory in nature and driven by cost push, mentioned the report.
Finally, the rupee appreciated by 0.4 percent in the last month. Apart from dollar weakness, FPI inflow and lower oil prices can explain the strength in the rupee, added the report.
According to the report, global markets turned cautious once again amidst renewed concerns of the banking crisis looming for the second time in the last 2 months along with the debt ceiling standoff in the US. Additionally, crude oil prices also declined for the second straight week amidst uncertainty and subdued economic data print from the US, thereby weighing in on the demand outlook. Lower oil prices are positive for rupee, further noted BoB.