Rupee likely to depreciate amid uptick in dollar index; USDINR pair to trade with positive bias

The Indian rupee is expected to depreciate today amid uptick in dollar index and concerns over ongoing geopolitical tensions between the US and Russia.

Rupee vs dollar
USDINR pair to trade with a positive bias and quote in the range of 74.20 and 74.80

The Indian rupee on Monday fell 17 paise to close at an over three-week low of 74.60 against the US dollar on account of elevated crude oil prices, forex outflows and heavy losses in domestic equity markets amid growing geopolitical worries, omicron spread concerns. The American currency in the overseas market and weak risk appetite for other assets also dragged the local unit down as market participants are now wait for the US Fed’s January 25-26 meeting for further cues. At the interbank foreign exchange market, the rupee opened at 74.43 against the greenback and witnessed an intra-day high of 74.42 and a low of 74.69 before settling 0.23% down at 74.60, the lowest closing level since December 27.

US$INR (January) expected to rise towards 74.95: ICICI Direct

“The US dollar surged 0.22% on Monday amid risk aversion in the global markets. Further, rising tensions between Russia and the US over Ukraine issue lifted the dollar index. However, disappointing macroeconomic data from the US and decline in US treasury yields added downside pressure to the dollar index. Rupee future maturing on January 27 depreciated by 0.22% on the back of stronger dollar index and higher FII outflows from the domestic equity markets.”

“The rupee is expected to depreciate today amid uptick in dollar index and concerns over ongoing geopolitical tensions between the US and Russia. Further, risk aversion in global markets and expectations of a more hawkish stance from the US Federal Reserve this week may continue to put pressure on the rupee. US$INR (January) is expected to rise towards 74.95 for the day.”

Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.

“Rupee continued to remain under pressure following losses in domestic equities and strength in the dollar against its major crosses. Gains for the greenback extended after US treasury yields rose to the highest level in two-years on expectation that the Federal Reserve could be raising rates sooner-than-expected earlier. Yesterday, US treasury yields jumped to two-year highs and equity markets tumbled by more than 2%. Inflation fears were bolstered as oil prices rose to their highest since 2014 on possible supply disruptions after attacks in the Gulf increased an already tight outlook. Yields have jumped since minutes from the Fed’s December policy meeting showed it may raise rates sooner than expected and begin reducing its asset holdings to slow inflation and address a tight labor market.”

“Euro and pound both were weighed down in yesterday’s sessions following broad gains in the dollar. At the same time, inflation in the Euro zone and the UK is set to remain hotter throughout the year 2022, which could pressure the European Central Bank to tighten policy once the Omicron wave of the pandemic passes. Today, focus will be on the inflation number that will be released from the UK and that could trigger further volatility for the currency. We expect the USDINR pair to trade with a positive bias and quote in the range of 74.20 and 74.80.”

Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors

“Rupee to open around 74.58 and remain in the range of 74.40 to 74.80 as volatility hits all market segments due to Ukraine, Gulf and FED meeting. RBI has been selling for Government Dividend in the past two months and ensuring dollar is not able to go much higher. They are actually spreading out their Dividend Payment to government since November and may continue selling up to Feb and March. The FED meet to start tonight and conclude tomorrow as we all await to see if any surprise rate hike tomorrow or the tone is very hawkish. Exporters to be selling at 74.70 for longer term so that they can utilize the contract if USDINR heads lower. If it heads higher then they may sell in cash. Importers to wait for better levels to hedge.”

Kshitij Purohit, Lead Commodity & Currency, CapitalVia Global Research

“On Monday, the dollar index, which compares the US currency to six major currencies, reached a high of 95.87, up from 95.64 at the previous close. Higher US interest rates usually cause foreign investors to sell riskier developing market assets and move their money to the world’s largest economy. As the world’s third largest importer of crude oil, an increase in crude oil prices is bad news for India’s inflation and trade imbalance. The news flow has been largely negative for the rupee, and the Reserve Bank of India has not intervened much at present levels either, as the move is in line with global fundamentals; there may be no purpose in wasting a huge amount of reserves in such a situation. Before making a definitive determination on where to protect rupee levels, the RBI will wait to observe how hawkish the Fed is.”

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