Is the dollar overbought and over-loved?

That’s the question doing the rounds even as the dollar rose last week, the eighth consecutive time.

Some analysts expect a pullback in the coming days.

Corrections are always good, but the US dollar is expected to remain strong as US growth continues to defy the US Federal Reserve’s interest rate hikes and it continues to outshine the growth rates of Europe and China.

A strong dollar brings its own set of challenges to countries like India.

Back home, India seems to be toast of the world as world leaders, including US President Joe Biden, congregated in New Delhi for the G-20 summit.

It is an advantage for India!

A showcase event such as this will spur investments in the country. Indian stocks are near all-time peaks and the country remains one of the fastest-growing in the world. Successful events such as the G-20 summit will add to India’s appeal and nudge fund managers to stay overweight.

Incidentally, Nvidia Chief Jensen Huang, who is in the country, says AI can become India’s biggest export in the coming years. He tied up with the Tatas and Reliance Industries last week.

India Markets Last Week:

Stocks continued to defy trends in Asia and Europe and continued to rise this week. They logged the best week in over two months, posting gains for the second consecutive week. On Friday, financial services companies rose after the RBI said it was releasing the funds impounded by incremental cash reserve ratio in stages. Energy companies too posted gains. The lack of opportunities in other markets and the rising appeal of India continued to boost stocks. Sensex and Nifty are up 3% from their 2-month lows hit last month.

Yields rose slightly this week as the market tracked the rise in US yields and oil prices. The 10-year paper again reached 7.20%. Expectations that India will soon be included in bond indices prevented a sharper rise in yields. Sans this possibility, the market sees no positive for Indian bonds in the immediate run. The RBI letting up on I-CRR may not prevent tightness in liquidity next week when advance tax payments are made. The latest weekly government bond auction was along the expected lines and did not offer fresh cues to the market.

Rupee ended the week lower due to the dollar’s strength, but it ended higher on Friday due to support from the RBI. The rupee managed to close below 83/$1.

Global Markets Last Week:

US stocks closed the week lower, weighed down by technology heavyweights such as Apple and Nvidia. Apple shares fell after China ordered its officials to stop using the iPhone. Investors were concerned that the rally in the technology sector was overdone. Apple and Nvidia were responsible for 30% of S&P 500’s returns this year, according to some estimates. Some doubts have crept in over the earnings potential from the AI boom for several companies.

US Treasury yields were higher for the week and ended mixed on Friday, up at the shorter end and down at the longer end. A raft of comments from Fed officials indicated that the US central bank will skip interest rate hikes in September. But they seem to leave a rate hike on the table for November. Dallas Fed President Lorie Logan said if the Fed skips a rate hike in September, that doesn’t imply rate hikes will stop for good in this cycle.

US dollar held steady against a basket of peer currencies on Friday but it managed to post its eighth straight week of gains a trend last seen in 2014. The latest economic data raised the prospects for another rate by the US Fed in 2023. This supported the dollar.

Corporate Bonds

Secondary Market

Yields rose by 2-3 basis points across tenures in the secondary market, tracking a rise in government bond yields after a news report stated that the Reserve Bank of India was open to allowing the settlement of government bonds on the Euroclear platform.

Outlook For This Week

Stocks may rise this week and the uptrend is likely to continue as India, high on the success of the G-20 meeting, may continue to draw foreign inflows. RBI withdrawing its I-CRR in a phased matter could also boost stocks, especially the financial ones. US yields could continue to drive Indian bond yields. A sharp move is unlikely. The rupee is likely to hover around 83/$1 due to strong importer demand for dollars. RBI dollar sales may limit the fall in rupee.

In Other News

• G20 Summit: Foreign secy says hopeful of Communique at end of meet.
• RBI to withdraw incremental CRR in phases, release 25% of amount Sat.
• Banking secy says India fintech market size to rise to $150 bln by 2025.
• SEBI's Buch says move to 1-hr share settlement in short period of time.
• Fin min issues FY25 Budget circular, pre-Budget meets to start Oct 9.
• India August composite PMI at 60.9; services PMI at 60.1.
• NVIDIA partners with RIL, Tatas to build AI infrastructure in India.
• RBI OKs appointing Dipak Gupta as Kotak Bank interim MD, CEO for 2 months.
• HUL turns focus on price cuts, volumes to fight small companies.
• TCS bags 800-mln-pound-sterling digital transformation deal from JLR.
• Reliance Jio seeks up to $2 billion loan in offshore loans to fund 5G plan.
• US jobless claims hit lowest level since Febreuary; productivity strongest in years.
• Japan cuts Q2 GDP on weak spending, wages slide.
• Bank of England chief hints rate hikes could end soon.
• US Fed official signals support for rate pause at next meeting.
• Brent oil hits $90 a barrel as OPEC+ extends supply curbs.