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Rupee likely to appreciate on weak dollar, LIC IPO related inflows; USDINR pair to trade in this range

The Indian Rupee is likely to appreciate on Thursday amid retreat in US dollar. The local unit may strength on LIC IPO related inflows and as RBI surprised market by raising rates to tighten liquidity, according to Forex analysts.

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USDINR(Spot) to trade sideways and quote in the range of 75.80 and 76.50

The Indian Rupee is likely to appreciate on Thursday amid retreat in US dollar. The local unit may strength on LIC IPO related inflows and as RBI surprised market by raising rates to tighten liquidity, according to Forex analysts. Rupee appreciated against the U.S. dollar in the previous session following RBI’s surprise rate hike ahead of the U.S. Federal Reserve’s policy decision. At the interbank forex market, the domestic unit opened at 76.46 against the greenback. It moved in the range of 76.17 to 76.58 during the session before finally settling at 76.40, registering a rise of 8 paise over its previous close.

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

“Rupee traded in a narrow range for the last few sessions and market participants remained cautious ahead of the important FOMC policy statement that was released yesterday. On the domestic front, in a surprise move, the RBI raised the repo rate by 40bps and also hiked the CRR by 50bps. The governor said that the policy action is aimed at lowering inflation and anchoring inflation expectations – will strengthen and consolidate the medium-term growth prospects of the economy. He added food inflation pressures are likely to continue. Inflation has now been above the upper limit of RBI’s 2%-6% tolerance band for a third straight month.”

“On the other hand, the Fed in its policy statement raised rates by 50bps and said that its $9 trillion balance sheet would be allowed to decline by $47.5 billion per month in June, July and August and the reduction would increase to as much as $95 billion per month in September. The dollar fell against its major crosses after the announcement as the size of balance sheet trimming was less than market estimates. The greenback fell also as the Fed Chairman mentioned that the US central bank is not considering 75bps rate hike, but added that additional 50 basis point jumps should be on the table for the next couple of meetings. Focus will now shift to the non-farm payrolls number that will be released from the US. We expect the USDINR(Spot) to trade sideways and quote in the range of 75.80 and 76.50.”

Rupee likely to appreciate: ICICI Direct

“The rupee is expected to appreciate today amid retreat in US dollar. Further, rupee may gain strength on LIC IPO related inflows and as RBI surprised market by raising rates to tighten liquidity. However, sharp gains may be prevented on surge in crude oil prices. Additionally, investors will remain vigilant ahead of Opec+ meeting. US$INR (May) is expected to trade in a range of 76.20-76.65.”

Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities

“USDINR is sitting pretty on the lap of the option sellers. The rangebound price action between 76.10 and 76.75 on spot has allowed them to generate decent risk-adjusted returns. But as we have seen in the past, the longer the USDINR remains within a well-defined, the greater becomes the probability of a shift in that range, upward or downward. In this case, with RBI intervening aggressively to prevent USDINR from moving above 77 and the 21,000 crore LIC IPO adding the FPI flows, an upward shift in range appears unlikely. Therefore, markets may have to wait for $ to soften globally, before doing a downward shift in the range. Therefore, for now, we have to focus on short option strategies, even though the implied vols are low. One can even do hedged strategies, in order to avoid an unexpected range breakout or breakdown.”

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