The Indian rupee rupee surged 23 paise on Wednesday (5 January) to close at 74.35 (provisional) against the US dollar, tracking gains in domestic equity markets. At the interbank forex market, the local unit opened up at 74.54 against the US greenback and touched an intra-day high of 74.30, low of 74.55 before finally settling at 74.35, a rise of 23 paise over its previous close. In the previous session, the local currency tumbled 30 paise to close at 74.58 against the US dollar. Meanwhile, Dollar index reversed gains taking cues from fall in US Treasury bond yields. Going forward, the rupee is expected to depreciate on a strong dollar, risk aversion in the global markets, and surge in crude oil prices.
Rupee expected to depreciate on a strong dollar: ICICI Direct
The US dollar fell 0.10% yesterday but pared losses amid upbeat job data and surge in US treasury yields. Yields rallied after FOMC meeting minutes showed officials feel rising inflation and a very tight labour market warrant raising interest rates sooner than expected and reducing overall asset holdings. Rupee future maturing on January 27 appreciated by 0.29% on weak dollar, rise in risk appetite in the domestic markets and FII inflows.
The rupee is expected to depreciate on a strong dollar, risk aversion in the global markets and surge in crude oil prices. Market sentiments were hurt as investors fear that Fed may respond more aggressively to sticky inflation than previously expected. Additionally, market participants are worried that monetary tightening across major countries to address stubbornly high inflation may prompt foreign investors to pump out liquidity from emerging markets.
USDINR (Spot) likely to trade sideways: Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services
Rupee opened on a flat note but rose in the latter half of the session following suspected dollar selling by a couple of corporates. Lack of cues on the domestic front also kept the rupee volatility in check. Dollar has been under pressure against its major crosses after manufacturing PMI released from the US came in below estimates. Yesterday, in the US session, the dollar pared losses after the Federal Reserve meeting minutes showed the U.S. central bank may need to act more quickly in hiking interest rates to combat inflation. Fed officials said the “very tight” U.S. labor market might warrant raising rates sooner than expected as well as reducing the bank’s overall asset holdings to tame high inflation.
In the next couple of sessions the dollar will be getting cues from the services PMI and employment number and better-than-estimated data could support the greenback. We expect the USDINR (Spot) to trade sideways and quote in the range of 74.20 and 74.80.
Rupee value to be harmed by dollar’s global strength: Kshitij Purohit, Lead Commodity & Currency at CapitalVia Global Research.
Foreign bank dollar sales and fund inflows into local equities, as well as expected flows from offshore bond offers, boosted the Indian Rupee against the US Dollar on Wednesday. Strong local equities also helped to boost the currency. The benchmark BSE Sensex in India increased by 0.6%. Meanwhile, foreign investors have invested $482 million in Indian stocks so far this year. The Indian rupee is now trading somewhat lower against the US dollar, owing to India’s significant trade deficit in December 2021, which is expected to impact on the economy and, as a result, the currency. The rupee’s value is projected to be harmed by the dollar’s global strength. The rupee, on the other hand, may find some support as domestic equities indices rise in tandem with their US counterparts.
Following hints of aggressive tapering by several Central Banks amid increasing inflation, the yield on the 10-year government bond surged above 6.5% and reached 6.5425% today, the highest since February 2020, in contrast to the RBI’s accommodative attitude. The bond market was pulled down by the impact of fast spreading Omicron illnesses on the economic recovery, as the country recorded more cases this week than in the previous week. The US dollar is rising as investors expect the Federal Reserve to begin raising interest rates as soon as March, despite the US economy’s strong recovery and rising inflation. As the dollar reclaimed the 96 level ahead of today’s Fed meeting minutes, most Asian currencies are trading lower. Technically, if the Dollar Index trades above $96.00 level, it could witness a bullish momentum up to $96.44-$96.70 levels. Support zone is at $95.88-$95.75 levels.