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Rupee likely to depreciate amid recession fears, elevated crude prices; USDINR to trade sideways in this range

The Indian Rupee is likely to depreciate on Wednesday amid elevated crude prices, inflation and recession fears and persistent FII outflows. The rupee slipped to a new low against the dollar Tuesday, as rising global crude oil prices exacerbated investor concerns on India’s current account deficit.

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Higher oil prices can generate a new layer of demand for the USDINR

The Indian Rupee is likely to depreciate on Wednesday amid elevated crude prices, inflation and recession fears and persistent FII outflows. The rupee slipped to a new low against the dollar Tuesday, as rising global crude oil prices exacerbated investor concerns on India’s current account deficit. Expectation of dollar outflows due to Holcim Group’s sale of its India cement business is also said to have added to rupee’s rout. The Reserve Bank of India likely intervened in the spot, forwards and futures markets, helping the local unit erase early losses against the greenback, according to analysts. It sold an estimated $1 billion during the day, they said. The local unit touched an all-time low of 77.80 per dollar intraday in previous session before ending at 77.57, up 0.26% from its previous close.

Praveen Singh, AVP- Fundamental Currencies and Commodities Analyst

“Indian rupee depreciated yesterday on surge in crude oil prices and disappointing macroeconomic data. India’s trade deficit widened to $20.11 billion in April compared to $18.51 billion in March. However, soft tone in the US Dollar and risk-on sentiments in global markets have cushioned the downside. Dollar declined on positive undertone in the risk assets and weak economic data. Rupee is expected to trade with some positive bias on improved global risk sentiments on reopening of Shanghai and weak Dollar. However; overall shaky risk sentiments and concerns over global economic recovery may cap sharp upside. Tensions due to Ukraine war may also weigh on Rupee. Rupee may trade in the range of 76.80-78.30 in next couple of sessions.”

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

“USDINR spot scored a new high at 77.78 but closed off its high at 77.56. A new high and then suspected intervention from RBI and USDINR drifting down towards unchanged levels. This has been the pattern over the last few trading sessions. Today some lump corporate flows on either side can be blamed for the up move and then pullback but we suspect RBI may have played a key role as well. Crude oil prices have begun to drift higher as market has begun to price a gradual reopening in China. Impact of higher oil prices is felt with a lag as long as US Dollar is soft and equities are moving higher. Today, US Dollar Index was soft on long liquidation and equities were on the bid. However, we need to keep a close eye on oil prices. Higher oil prices can generate a new layer of demand for the USDINR. Tomorrow, we could see range bound price action, if the risk on mood and soft Dollar trend persists.”

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

“Rupee rose after falling to all- time lows earlier this week as domestic and global equities witnessed a pull back from lower levels. Dollar against its major crosses also retraced after rising to a fresh 20-year high despite hawkish comments from the Fed Chairman. In his interview he pledged that the U.S. central bank would ratchet interest rates as high as needed to kill a surge in inflation that he said threatened the foundation of the economy. On the other hand, dollar slipped even after U.S. retail sales rose strongly in April. Today, market participants will be keeping an eye on the housing numbers from the US and CPI number from the UK. Expectation is that inflation in the UK could continue to inch higher and that could raise prospects of further rate hike by the Bank of England in its upcoming policy meeting. We expect USDINR(Spot) to trade sideways and quote in the range of 77.05 and 77.80.”

Amit Pabari, MD, CR Forex Advisors

“After testing an all-time low in the early hours, the Indian Rupee appreciated towards the 77.50 mark as the domestic equity market was seen in a recovery mode and US DXY too corrected sharply below the 103.50 mark or fell by 0.70%. Another reason behind the recovery in Rupee could be exporter’s rush to lock 80+ rate in the long-term forwards and RBI’s offloading of yards of dollars to calm down the negative sentiment. Today, the USDINR pair is expected to open around 77.45 levels and is likely to trade in the range of 77.20 to 77.70 zone. On the local front, equities jumped by more than 2.50% as the global market showed recovery. However, FIIs remained a net seller in this kind of recovering market too. The domestic yields again started inching higher due to higher oil prices and this could pressurize RBI to go aggressive on their policy hikes. The rally in oil could again keep Rupee’s pullback limited. Thus, the pair could be seen trading in a broad range of 76.80 to 77.80 over the short term and 76.50-78.50 over the medium term.”

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