The Indian rupee strengthened sharply against the US dollar on Tuesday, closing at Rs 73.91, its highest level in nearly three-and-a-half months as some banks sold the American greenback likely on account of overseas inflows. The local unit surged 14 paise against the US dollar on Tuesday, tracking a weak American currency in the overseas market and firm trend domestic equities. At the interbank forex market, rupee opened strong at 73.94 against US dollar and witnessed an intra-day high of 73.83, a low of 74.00 before settling at Rs 73.91 against the US greenback. Rupee is likely to bounce back from its lower band of Rising Channel formation which is placed at 73.70 levels. Resistance is at 73.95-74.08 levels. Meanwhile, the dollar index, which measures the greenback’s strength against the basket of six currencies, fell 0.11 per cent to 95.88.
Rupee likely to appreciate amid weakness in dollar: ICICI Direct
The US dollar declined 0.39% yesterday amid a rise in risk appetite in global markets and decline in US treasury yields. Market sentiments improved as US Federal Reserve chairman Jerome Powell reiterated Fed’s efforts to tame inflation and also said the bank has not made any decisions about shrinking its balance sheet. Rupee future maturing on January 27 appreciated by 0.18% on rise in risk appetite in domestic markets and FII inflows. However, further gain was prevented on elevated crude oil prices and investors remained cautious. The rupee is expected to appreciate amid weakness in dollar and rise in risk appetite in global markets. Market sentiments improved as fears of aggressive Fed policy tightening calmed after the Fed Chair’s testimony. However, further gains may be prevented as investors will remain cautious ahead of CPI data from India as well as from the US.
Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services
“Rupee continued to appreciate following gains in domestic equities and broad weakness in the dollar against its major crosses. Market participants continue to remain cautious ahead of the important inflation and industrial production number that will be released on the domestic front today. Expectation is that inflation could inch higher to above 5.50% and at the same time industrial production could grow at a slower pace thereby restricting major gains for the rupee. Dollar fell in yesterday’s session after the Fed Chairman in his congressional hearing pointed out that the economy should weather the current COVID-19 surge with only “short-lived” impacts and was ready for the start of tighter monetary policy.”
“The Fed chief said the central bank was determined to ensure that high inflation did not become “entrenched,” and that it was far from diminishing job growth. If prices continue spiking, the Fed could be forced to push through a sharper rise in interest rates this year than the three quarter-percentage-point hikes its policymakers currently anticipate. Today, from the US, CPI number will be released and a higher number is likely to raise prospects of faster rate hike by the Fed and thereby lead to a stronger dollar. We expect the USDINR pair to trade sideways and quote in the range of 73.50 and 74.20.”
Kshitij Purohit, Lead Commodity & Currency at CapitalVia Global Research
“The selling activity in the USD/INR pair is still strong, as the pair fell for the fifth day in a row on Tuesday, breaking through critical support levels. The recent drop in the spot market could be linked to the US dollar’s resurgence across the board. The dollar is tracking a drop in Treasury yields as investors repositioned ahead of Fed Chair Jerome Powell’s hearing and US inflation data.”
On the domestic front, USD/INR Jan Future has formed support in the 73.97-73.95 zone, while on the upside, prices may get challenged in the 74.17-74.20 zone. On the hourly charts, prices have closed below 15-SMA. Any closing below 73.95 on intraday charts with ample volumes may be a signal for continued bearish momentum till 73.90-73.88 zone. USDINR Spot could bounce back from its lower band of Rising Channel formation which is placed at 73.70 levels. Resistance is at 73.95-74.08 levels. Support is at 73.65-73.50 levels.