The Indian rupee on Tuesday weakened sharply against the US greenback as a surge in US Treasury yields supported the US dollar index, intensifying concern of overseas investment outflows from Indian markets. The local unit settled at 74.57 (provisional) against the U.S. dollar on Tuesday. At the interbank foreign exchange market, the rupee opened at 74.49 and witnessed an intra-day high of 74.46 and a low of 74.61 against the U.S. dollar before settling at 74.57, down 29 paise over its previous close of 74.28. The dollar index, which gauges US dollar’s strength against a basket of six currencies, was trading 0.02 % up at 96.23.
The US dollar advanced 0.06% yesterday amid a surge in US treasury yields and decline in US stocks. Further, Minneapolis Federal Reserve Bank President Kashkari said he expects the central bank to need to raise interest rates twice this year to address high inflation. However, sharp upside was capped on disappointing economic data from the US. Rupee future maturing on January 27 depreciated by 0.33% on strong dollar, disappointing economic data from country and surge in crude oil prices. However, further fall was prevented on rise in risk appetite in the domestic markets and FII inflows, said ICICI Direct Currency Outlook report.
The rupee is expected to depreciate on a strong dollar, expectation of disappointing economic data from the country and surge in crude oil prices. Further, investors are worried that monetary tightening across major countries to address stubbornly high inflation may prompt foreign investors to pump out liquidity from emerging markets, it added. EURINR (January) is expected to trade in a range of 84.30-84.70 while GBPINR (January) is expected to trade in a range of 100.80-101.35.
USDINR(Spot) to quote sideways with positive bias
Rupee was weighed for the second successive session following trade balance number that showed the deficit widened in December. India is staring at high trade gap numbers in FY22 and FY23 with current account remaining in deficit due to increased imports. The country’s exports in December rose by a record 37% y-o-y to $37.29 billion. This is the highest-ever monthly achievement of exports so far. Imports also increased by 38.06% to $59.27 billion over $42.93 billion in December 2020. Consequently, India’s trade deficit last month widened by 39.9% YoY to $21.99 billion, said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.
Dollar started the year on a positive note but was under pressure in yesterday’s second half of the session after data showed manufacturing PMI in the US fell in December. The index was at 58.7 in December as compared to 61.1 in the previous month. This week, focus will be on services PMI and employment numbers from the US. Better-than-estimated numbers could restrict major downside for the dollar. For the day, we expect the USDINR(Spot) to quote sideways with a positive bias and quote in the range of 74.30 and 74.80, he added.
Rupee exchange rate likely to depreciate by 2.75%
Due to a substantial increase in US yields as well as the rise in the US dollar against the main currencies, USD/INR opened the day a lot firmer at 74.5, posting an overnight gain of 25 paise/USD. In the current financial year, the rupee exchange rate is predicted to depreciate by 2.75% or less. In 2021, the MSCI world index increased by 17%, marking the third consecutive year of double-digit gains. Indexes in the United States are on track to have their best three-year run since 1999. Brent and WTI both increased by more than 50% in 2021, owing to a worldwide economic rebound and producer constraint, said Kshitij Purohit, Lead Commodity & Currency at CapitalVia Global Research.
In 2021, gold had its worst year in six years, while silver sank by a stunning 11.56%. All of this will have an impact on the USD/INR exchange rate in the future sessions. On fears over Omicron, most Asian currencies are trading lower. The spread of Omicron has put a halt to the revival of the EM Asian region’s economy. The Indian rupee began the first working day of the year by mirroring domestic equities markets, which began the day considerably higher. Indian stock markets remained upbeat, with IT and auto sectors gaining, thanks to broad-based purchasing across sectoral indices, he added.
USDINR pair likely to open near 74.55
The strength in the rupee was finally interrupted as the US dollar was lifted by rising US 10 year Treasury yields which rose yesterday up to 1.68% indicating the expectations of Hawkish Fed and stronger economic growth despite the rising Omicron cases. The prospect of three rate hikes from the Federal Reserve this year is finally creating demand for the dollar while on the flip side, the rupee has strengthened enough in the past few days and is up for a reversal. USDINR is likely to open near 74.55 and trade between the range of 74.30-74.80 today, said Amit Pabari, Managing Director, CR Forex Advisors.
Domestically, there has been growing expectations that RBI will not hike the reverse repo rate in the upcoming policy meet and tighten liquidity measures as the rise of Omicron cases could affect business activity. This could be one of the reasons for the rupee to weaken against the dollar in the near term. Besides, consistently widening trade deficit and oil prices supported by the OPEC decision will likely keep the rupee under pressure. On the data front, Fed’s December meeting minutes and the release of US non-farm payrolls data will be keenly watched for the momentum in the dollar this week. Overall, we expect that the downside in the USDINR pair might be over near 74.10-30 and the pair will move upside towards 75.20, Pabari said.