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Rupee likely to depreciate amid strong dollar, unabated foreign funds outflows; USDINR to trade in this range

The rupee is expected to depreciate today amid strong dollar and unabated foreign funds outflows. However, sharp downside may be prevented on expectations of another interest rate hike by RBI. US$INR futures is likely to trade in the range of 77.75 to 77.90

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The rupee is currently at 77.63 a dollar, after hitting a low of 77.92 last month. So far this year, the dollar is up over 4.4% against the rupee

The Indian Rupee is expected to depreciate further, and may even fall below 80 mark in near term. Reports from UBS AG, Nomura Holdings and Bloomberg Economics suggest rupee will go down to 79-81 to a dollar over the next few months. Bloomberg Economics predicts the rupee will fall to 81 per dollar by the end of November. Nomura Holdings Inc. sees the local currency at 79 by end June, while Standard Chartered Plc also sees a similar level by the third quarter. In the previous session, the rupee closed unchanged against the US dollar in muted trade as participants largely stayed on the sidelines ahead of the RBI’s policy decision later this week.

While the domestic unit gained initially amid a weak American currency in the overseas market, elevated crude oil prices along with unabated FII outflows and subdued domestic equities capped the appreciation bias. The rupee is currently at 77.63 a dollar, after hitting a low of 77.92 last month. So far this year, the dollar is up over 4.4% against the rupee. Surging crude prices, foreign fund outflows, broad dollar strength and firm US bonds are among the reasons for weakness in the rupee.

Rupee likely to depreciate today: ICICI Direct

“The US dollar edged higher on Monday amid surge in US treasury yields. US treasury yields extended gains after nonfarm payrolls data showed the economy added 390,000 jobs in May above the market expectations for 325,000. Further, the dollar was supported by a selloff in US stocks. US$INR futures maturing on June 28 ended higher on Monday amid strong dollar and weak domestic indices. The rupee is expected to depreciate today amid strong dollar and unabated foreign funds outflows. However, sharp downside may be prevented on expectations of another interest rate hike by RBI. US$INR futures is likely to trade in the range of 77.75 to 77.90.”

Amit Pabari, MD, CR Forex Advisors

“After consecutively choppy trading sessions, the USDINR pair seems to have broken the long-held silence and gain some momentum amid an eventful week. The pair is setting a tone to trade near the upper end of the narrow range of 77.40-77.80 levels taking negative cues from Asian peers amid a rebound in DXY. The risk appetite is setting the market tone ahead of this week’s big events, and is really going to shape expectations for central bank’s policy through the end of the year.”

“Moreover, an elevated DXY, inflated crude oil, FII’s outflows, and a rise in bond yields have mounted pressure on the rupee. However, RBI with its pile of $600 Bn reserves has done a fabulous job in curbing the volatility and preventing the pair to break past 77.80 levels for over a month. If yet again RBI manages the pair below 77.80 and offers a rate hike as expected, we might see rupee coming back to 77.10-77.40 levels.”

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

“One more day of watching the paint dry in USDINR. Futures prices closed at 77.79 levels. Global cues were not strong enough to push USDINR out of slumber. It seems speculators are catching cold feet when it comes to pushing prices out of this range. Next trigger could RBI policy meeting, which on 8th but whether it will be enough to push below 77.40 or 77.80 on spot, it is hard to say. As long as the range continues, selling options remains the preferred route to earn profits. However, it needs to be acknowledged, the risk is now high and return prospects are low on short option trade. Hence, ensure your position is small or your position is hedged like iron fly or iron condor.”

(The recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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