Rupee likely to appreciate on a weak dollar; USDINR pair to quote in this range

Rupee is expected to trade in a close range this week amid the year-end holidays and Omicron variant spread concerns.

Rupee PTI
The rupee is expected to appreciate on a weak dollar (File Photo PTI)

Rupee on Wednesday snapped its nine-day winning streak to settle 3 paise lower at 74.73 (provisional) against the US dollar, following weakness in domestic equities. At the interbank foreign exchange, the domestic unit started on a tepid note at 74.69 against the US greenback. Intraday, it touched a high of 74.68 and a low of 74.86. On Tuesday, the rupee registered its ninth straight session of gain and surged 30 paise to close at a one-month high of 74.70 against the greenback. Rupee is expected to trade in a close range this week amid the year-end holidays and Omicron variant spread concerns.

The US dollar declined 0.29% yesterday on a rise in US stocks and disappointing pending home sales data. Market sentiments improved on fading concerns over severity of Omicron variant. However, further downside was cushioned on rise in US treasury yields. Rupee future maturing on January 27 appreciated by 0.03% despite a firm dollar and muted domestic markets. Furthermore, persistent FII outflows, surge in crude oil prices and month end dollar demand prevented further gains in rupee.

The USDINR pair made a flat opening at 74.69 levels and traded in the range of 74.69-74.84 with an upside bias. The pair finally closed at 74.74 levels. Immediate resistance to be around 75.90 levels followed by 75.25. Support for the pair is at 74.50 The USDINR pair rose because investors’ appetite for riskier assets weakened as they continued to evaluate the risk posed by the highly-transmissible Omicron variant of COVID-19 to global economic recovery, according to the IFA Global report. The Reserve Bank of India has set the reference rate at 74.7375.

Rupee likely to appreciate on a weak USD

The rupee is expected to appreciate on a weak dollar and as concerns over severity of Omicron variant eased. Many countries are trying to limit the economic damage by relaxing rules on isolation. However, sharp gains may be prevented on persistent FII outflows, surge in crude oil prices and month end dollar demand from importers. US$INR (January) is expected to trade in a range of 74.55-75.05, according to ICICI Direct Research.

USDINR (Spot) to quote sideways

Rupee traded in a narrow range but volatility was low as market participants remained on the sidelines following New Year holidays. On the domestic front, fiscal balance number will be the only important data to watch and a higher deficit could restrict gains for the currency. In the Asian session, dollar rose on the back of safe haven buying following the rise in COVID cases and on expectations the Federal Reserve could raise interest rates as early as March. Later during the day, the greenback fell after data showed merchandise-trade deficit widened to a record in November as imports surged to an all-time high. The gap increased to $97.8 billion last month from a revised $83.2 billion in October, said Gaurang Somaiya Forex & Bullion Analyst, Motilal Oswal Financial Services.

“The goods-trade shortfall has reached new records this year, consistent with solid consumer demand and business investment. With inventories still very lean, strained supply chains and congested ports have made it difficult for U.S. importers to satisfy the robust appetite for finished goods and supplies. Today, from the US focus will be on the weekly jobless claims number and that could provide cues to the less volatile dollar as we head into the New Year weekend. We expect the USDINR(Spot) to quote sideways and quote in the range of 74.50 and 75.20,” he added.

USDINR Spot may bounce back from its 100-DMA

In the last few sessions, movement in the INR has been led by RBI intervention and weakness in the dollar index. Most market participants have been on the sidelines on account of Christmas and New Year holidays suggests that the move has been on the back of thin volumes. The dollar index, which measures the greenback’s strength against the basket of six currencies, fell 0.08 per cent to 96.02. Brent crude futures, the global oil benchmark, rose 0.57% to $79.05 per barrel. USDINR Spot could bounce back from its 100-Daily Moving Average which is placed at 74.55 level, above which one could see 74.70-74.85 levels. Support is at 74.35-74.20 levels, said Kshitij Purohit, Lead Commodity & Currency at CapitalVia Global Research.

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