Rupee likely to depreciate on strong dollar, elevated crude prices; USDINR pair to trade in this range

The Indian rupee is expected to depreciate on Thursday on strong dollar and elevated crude oil prices. Market participants fear that tightening of monetary policy across major countries in globe to combat high inflation, may prompt foreign investors to pump out liquidity from emerging markets.

rupee vs dollar, dollar to rupee, usdinr
There is strong upside resistance near 77.80 for the USDINR pair

The Indian rupee is expected to depreciate on Thursday on strong dollar and elevated crude oil prices. “Market participants fear that tightening of monetary policy across major countries in globe to combat high inflation, may prompt foreign investors to pump out liquidity from emerging markets. “US$INR (May) is expected to trade in a range of 77.45-77.75,” said ICICI Direct. In the previous session, rupee recovered to settle marginally higher against the US currency in a restricted trade as interventions by banks supported the local unit while a stronger dollar in overseas markets restricted the gains. At the interbank forex market, the local unit opened higher at 77.54 against the greenback and moved in a range of 77.44 to 77.57 before finally finally settling at 77.54, higher by 3 paise over its previous close.

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

“USDINR— (May futures: 77.65, up 4 paise): One more day of back-and-forth trading but without any significant gains or losses. The inability of the market to push USDINR below 77.40/50 on May futures due to global risk sentiment and above 77.80/90 due to aggressive intervention from the central bank, is keeping the pair rangebound. Option selling has been a lucrative play but the implied volatility and hence option premiums have fallen so sharply that compensation for risk is low. Therefore, traders should reduce their position sizing at these levels and continues to focus on short option strategies.”

Amit Pabari, MD, CR Forex Advisors

“The most significant Fed meeting minutes were released yesterday, which although confirmed the hawkish stance and 50 bps rate hike for the next two meetings (already discounted) did not provide the guidance on the interest rates beyond September indicating that it needs to watch for the economic data points to provide guidance on further actions. US dollar failed to gather any steam or traction as the minutes failed to surprise the markets injecting the cautious optimism on US economic growth. Also, the recent change of stance from ECB and other major central banks is closing the interest rate differential gap and changing the demand outlook for the US dollar. For further clues, markets will be watching the preliminary US GDP data released today which is expected to remain stable at -1.4%.”

“Today, the Indian rupee is likely to open near 77.50 and trade in the range of 77.30 -77.70. On the domestic front, fiscal deficit worries were put down after the govt announced there is no need for additional borrowing to achieve the target despite of the huge tax cuts and subsidies on petrol, diesel, and natural gas. This led to some positive factors for the rupee as the economy struggles from the risks of higher inflation, higher crude oil prices, FII outflows, etc. In the past few days, the Indian rupee has been trading in a tight range of 77.40-77.65 as there is lack of conviction moves in the global markets particularly US dollar, besides there is strong upside resistance near 77.80 for the USDINR pair. Overall, as long as the pair is below 77.80 we can expect a correction towards 77.10-77.20 in the near term.”

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