Rupee likely to slip further on strong dollar, FII outflows; USDINR pair to trade sideways with positive bias

Spot USDINR has crossed and sustained above the near-term hurdle of 74.50, the 100 days simple average, has now opened way for 75 level while support has been shifted to 74.25.

The rupee is expected to continue its depreciation on pessimistic global market sentiments and strong dollar

Extending losses for the third consecutive session, the India rupee on Tuesday fell 33 paise to close at 74.58 against the US dollar as strong American greenback and elevated crude oil prices continue to weigh on investor sentiments. At the interbank foreign exchange market, the local unit opened at 74.36 against the US dollar and witnessed an intra-day low of 74.60 before settling at 74.58, down 33 paise over its previous close of 74.25 against the greenback. Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.09 per cent up at 95.34. Weakness in rupee is likely to continue for some more time, and there is a possibility of the Indian currency breaching 75.00 levels in the coming days, according to analysts.

Heena Naik, Research Analyst – Currency, Angel One Ltd

“Since the past few days, the Indian Rupee has been trading in a positive manner. However, this trend has finally been obstructed pulling the Rupee in the negative territory. Today, the local unit has weakened by almost 0.45 percent touching the lower levels of 74.60. Reason behind the same could be attributed to the opportunistic dollar buying by importing companies and banks.”

“Moreover, a lot of foreign investors are moving towards dollar denominated assets for investment as the FOMC Policy Meeting is around the corner (27th Jan’22) which could be hawkish in nature. This is hampering most of the emerging markets including India which is witnessing some outflows affecting the Indian currency in turn. This weakness is likely to continue for some more time. There is a possibility of Rupee (CMP – 74.57) breaching 75.00 levels in the coming days. Break of the same could push the currency towards 75.20 and higher levels.”

Dilip Parmar, Research Analyst, HDFC Securities

“Higher crude oil prices and risk-off sentiments following a surge in bond yields are enough for the rupee to become the worst performing currency among Asian currencies. Strong dollar demands have been seen from oil importers after Brent crude oil prices started quoting above $87 a barrel on back of supply worries. Going ahead, pullback rally in USDINR may continue for a few more days as sentiments are turning favourable. Spot USDINR has crossed and sustained above the near-term hurdle of 74.50, the 100 days simple average, has now opened way for 75 level while support has been shifted to 74.25.

Rupee to continue its depreciation: ICICI Direct

“Rupee future maturing on January 27 depreciated by 0.46% amid strong dollar and risk aversion in the domestic markets. Further, the rupee slipped on persistent FII outflows and seven year high crude oil prices. The rupee is expected to continue its depreciation on pessimistic global market sentiments and strong dollar. The dollar is regaining its strength as market participants prepared themselves for more aggressive monetary tightening from US Fed to tackle unabated inflation. Additionally, the rupee may slip on elevated crude oil prices and consistent FII outflows.”

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.”

USDINR has scope to rise towards 75 level: Kotak Securities

“The double negative or dual headwind for the Rupee remains in place by way of oil prices which have surged to 7 years high and US bond yields which are at a 2-year high. On one hand, high oil creates the risk of higher inflation and comes as a tax on consumers, and on the other, the rising real yields in US yields increase the appeal of USD assets over EM assets. USDINR has scope to rise towards 75.00/75.30 levels over the near term if this cocktail of headwinds can linger on. Technically, the trend is upward and momentum is strong. Buy on the decline is advised with a stop below 74.30 spot on a daily closing basis.”

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