Rupee likely to depreciate on strong dollar, pessimistic market sentiments; USDINR pair to trade in this range

The Indian Rupee is likely to depreciate further on Tuesday amid strong dollar and pessimistic market sentiments. In the previous session, rupee dropped 19 paise to close at a record low against the US dollar, after settlements.

Rupee likely to depreciate on strong dollar, pessimistic market sentiments; USDINR pair to trade in this range
The rupee is expected to depreciate today amid strong dollar and pessimistic global market sentiments. Also, investors will focus on inflation number from US that could influence Fed’s path for interest rate hikes

The Indian Rupee is likely to depreciate further on Tuesday amid strong dollar and pessimistic market sentiments. In the previous session, rupee dropped 19 paise to close at a record low against the US dollar, after settlements. At the interbank forex market, the local unit opened weak at 79.30 against the greenback and witnessed an intra-day high of 79.24 and a low of 79.49. After hitting a series of record lows in recent months, the local unit closed out Monday at its lifetime low of near 79.44 per dollar. Amid the constant pressure on Rupee due to persistent FII outflows, elevated crude prices and risk aversion in markets, the Reserve Bank of India (RBI) on July 11 said that it was putting in place a mechanism to settle international trade in rupees.

“The rupee is expected to depreciate today amid strong dollar and pessimistic global market sentiments. Also, investors will focus on inflation number from US that could influence Fed’s path for interest rate hikes. Further, the rupee may slip on persistent FII outflows and fears over slowdown in global economy. Also, market awaits India’s inflation numbers that is expected to stay above 7% for third consecutive month. Meanwhile, RBI measures to enable free flow of dollars into NRI accounts and set up of mechanism to settle trade transactions in rupees may provide some support to domestic currency,” said ICICIDirect.

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

“Rupee continued to remain under pressure and fell to its record lows following broader strength in the dollar against its major crosses. Yesterday, the RBI put in place a mechanism for international trade settlements in rupees, which banks will need seek prior approval to use. The order takes immediate effect and the mechanism is designed to “promote growth of global trade with emphasis on exports”. Today, on the domestic front, focus will be on the inflation number and expectation is that the number could come in a little higher and cement a case for more rate hike by the RBI. Consumer price data is due today and is this week’s major U.S. economic focus. We expect the USDINR(Spot) to trade with a positive bias and quote in the range of 78.70 and 79.50.”

Sugandha Sachdeva, Vice President – Commodity and Currency Research, Religare Broking

“The Indian rupee has pummelled to a fresh record low of 79.49 mark in line with the broad strength seen in the mighty dollar. With the US economy adding jobs at an impressive pace in June, the odds of a series of aggressive rate hikes have increased further, which is pushing the dollar index on an upwards trajectory. The greenback has surged towards a new 20-year high as the concerns about higher terminal rates in the US and deteriorating growth prospects are leading to safe-haven flows in the dollar, which is likely to weigh on the domestic currency in the near term.”

“On the domestic front, concerns about a ballooning trade deficit which has surged to a record high of $25.6bln in June are adding further pressure on the local unit. Besides, India’s forex reserves have declined by $5bln to $588.31bln during the week ended July 1, highlighting the fact that RBI has been proactively intervening in the forex markets to curtail excessive volatility in the rupee-dollar exchange rate. Considering the dynamics, once the Indian rupee breaches the crucial 79.50 mark, we envisage it to weaken towards the 80 to a dollar mark in the coming days.”

Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas

“Indian rupee touched a record low of 79.49 on weak domestic markets and a positive US Dollar. Domestic markets were down by about 0.4% while Dollar index rose by 0.52%. However, weak crude oil prices provided a cushioning effect. FII outflows on Friday stood at Rs 109 crores. Rupee is expected to trade remain weak on a positive tone in US Dollar. Dollar is likely to strengthen further on upbeat jobs report. US non-farm payrolls added 372,000 jobs in June, sharply above expectations of 260,000 jobs. This has raised expectations that US Fed may hike rates aggressively by 75 bps in its July policy. Markets may look out for US consumer inflation data which is expected to rise to 8.8% from 8.6% in the previous month. Rupee may trade in the range of 78.80-80 in next couple of sessions.”

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