Rupee likely to appreciate amid surge in risk assets, FII inflows; USDINR pair to trade in this range

The Indian Rupee is likely to appreciate against the US dollar on Tuesday amid surge in risk assets, foreign fund inflows. However, gains may be capped by strong American currency, rising oil prices and widening trade deficit

Rupee likely to appreciate amid surge in risk assets, FII inflows; USDINR pair to trade in this range
USDINR(Spot) likely to trade with a positive bias and quote in the range of 79.40 and 80.20

The Indian Rupee is likely to appreciate against the US dollar on Tuesday amid surge in risk assets, foreign fund inflows. However, gains may be capped by strong American currency, elevated crude oil prices, inflation fears and widening trade deficit, according to analysts. USDINR(Spot) is expected to trade with a positive bias and quote in the range of 79.40 and 80.20. In the previous session, rupee closed at 79.92 against the US dollar after breaching 80-mark and touching an all-time low during the early trade. The local had opened at 80 against the dollar and then declined to 80.06. It, however, recovered 6 paise on strong regional currencies and a positive domestic equity market.

“Despite the recent depreciation of rupee versus dollar, the Indian currency has been one of the most stable as even the hard currencies such as euro, yen and pound sterling have depreciated far more then rupee versus dollar over the last 12 months. There are certain balance of payment concerns for India including high oil imports, jump in trade deficit, outflow of foreign portfolio investment and almost $60 billion reduction in foreign exchange reserves from the peak, the depreciation of rupees should be seen more as dollar strength rather than rupee weakness. In fact, proactive foreign exchange management by the RBI has averted greater currency volatility as witnessed by many other peers,” said Sujan Hajra – Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers.

Dilip Parmar, Research Analyst, HDFC Securities

The Indian Rupee is likely to open slightly higher amid a sharp surge in risk assets and foreign fund inflows. On Tuesday, spot USDINR fell 3 paise to 79.95 after touching 80.06 in morning trade. Suspected RBI intervention, weaker dollar index and strong risk-on moods pushed the dollar lower against the rupee. Though, the trend is bullish near-term profit booking can’t be ruled out amid broad-based weakness in the greenback. Technically, spot USDINR is having resistance at 80.30 and support at 79.70.

Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services

“Rupee consolidated in a narrow range in yesterday’s session and volatility has been as market participants remain cautious ahead of the FOMC meeting scheduled next week. Yesterday, the dollar fell against its major crosses after reports suggest that European Central Bank policymakers are considering raising interest rates by a bigger-than-expected 50 basis points at their meeting tomorrow to tame record-high inflation. To cushion the impact of the higher borrowing costs, policymakers are also expected to announce a deal to help indebted countries like Italy on the bond market.”

“Investors were also keeping an eye on political drama in Rome with the Italian government mired in uncertainty over whether Mario Draghi will continue as prime minister. Pound too moved higher after Britain’s unemployment rate held at 3.8% in the three months to May while the number of people in work rose by the most since the middle of 2021. Today, focus will be on the inflation number that will be released from the UK. We expect the USDINR(Spot) to trade with a positive bias and quote in the range of 79.40 and 80.20.”

Sugandha Sachdeva, Vice President – Commodity and Currency Research, Religare Broking

“The rupee has depreciated to record lows amid tightening monetary conditions and risk-off sentiments as well as persistent outflows witnessed from the domestic markets. Significant dollar demand from oil importers amid elevated crude oil prices as well as concerns about swelling trade deficit have also been the key catalysts behind the steep descent seen in the Indian currency, wherein it has breached past the pivotal 80 mark. We do see some more pain for the domestic currency in the near term, but it is likely to remain cushioned by the 81 mark amid a host of factors.”

For one, the strength in the dollar index seems unsustainable at higher levels, with expectations that the European Central Bank and other developed market central banks will also hike interest rates aggressively. The long-term inflation expectations have fallen in the US, and concerns of super-sized tightening by the US Fed at the forthcoming meeting have eased, which is leading to a retreat in the dollar index from multi-year highs and aiding the local unit. Besides, the US central bank might be forced to pause its rate hike cycle going forward given the concerns about recessionary risks and it seems that the worst is likely to be over soon. Secondly, the RBI and the government have recently taken several measures which might stem the fall in the rupee. The rupee-dollar exchange rate is expected to hover in the 78.50 to 81 band till September.”

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Photos