Rupee may depreciate on firm dollar, elevated crude price; USDINR pair to quote sideways with positive bias

The rupee is expected to depreciate on a firm dollar and elevated crude oil prices. Oil prices are rising on worries over supply outages, escalating geopolitical tensions and as the fear of impact of Omicron variant on fuel demand faded.

Rupee
USDINR pair likely to trade sideways with a positive bias and quote in the range of 74.05 and 74.50.

The Indian rupee declined for the second consecutive session on Monday against the US dollar as factors including elevated oil prices and subdued domestic equities impeded investor sentiments. A rise in US Treasury yields and the dollar index also soured the view on Indian rupee, according to forex analysts. The local unit opened at 74.18 against the greenback at the interbank market on Monday, rising to touch an intraday high of 74.16 and a low of 74.36, before settling at 74.24 against USD, 9 paise lower than its last close. Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.05 per cent down at 95.11. Rupee is likely to depreciate further on firm dollar and elevated crude oil prices.

Rupee to depreciate on firm dollar: ICICI Direct

“The US dollar edged up yesterday amid mixed global market sentiments. However, major movement was missing as US markets were closed for public holiday and no major economic data was released. Rupee future maturing on January 27 depreciated by 0.17% as the US dollar bounced back from its recent lows. Further, elevated crude oil prices and FII outflows added some downside pressure. The rupee is expected to depreciate on a firm dollar and elevated crude oil prices. Oil prices are rising on worries over supply outages, escalating geopolitical tensions and as the fear of impact of Omicron variant on fuel demand faded. Additionally, the rupee may slip on persistent FII outflows. US$INR (January) is expected to trade in a range of 74.15-74.55”.

Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.

“Rupee opened lower against the US dollar but losses were capped following marginal gains in domestic equities. Volatility for major crosses remained low as US markets remain shut on account of Martin Lurther King day holiday. No major data is also expected to release on the domestic front and that could keep the volatility in check. The dollar edged higher against its major crosses as traders continued to hold on to dollars but took the view that Federal Reserve tightening plans were largely priced in.”

“Yesterday, growth number released from China showed the economy grew faster than expected in the final quarter of 2021 but the growth was still at its weakest pace in one-and-half years, prompting the central bank to unexpectedly cut loan rates. China has shown signs of slowing after a rapid rebound from the COVID-19 slump, with concerns about the financial health of property developers and the rapid spread of the Omicron coronavirus variant clouding the outlook. Today, focus will be on the employment numbers that will be released from the UK and at the same time German economic sentiment from the Euro zone will be a key data to watch for. We expect the USDINR pair to trade sideways with a positive bias and quote in the range of 74.05 and 74.50.”

Kshitij Purohit, Lead Commodity & Currency at CapitalVia Global Research

“The Indian currency has been battered by an increase in global crude oil prices and a hardening of US bond yields. The next two-day policy statement of the Federal Open Market Committee is set to begin on January 25. The Federal Reserve of the United States has indicated that it will raise interest rates many times in 2022 in order to combat the country’s rising inflation. As investors braced for tighter monetary policy, 10-year US Treasury bond yields surpassed the psychologically critical 1.80% line. This will be reflected in the USD/INR exchange rate.”

“Higher interest rates in the United States often result in outflows of foreign investment from riskier emerging nations like India. With the surge in oil prices, domestic currency traders speculated that the rupee could suffer a short-term correction, especially because the Indian currency has been remarkably resilient against the US dollar since the second week of December. Since December 20, the rupee has gained more than 2.3% against the dollar, owing mostly to Reserve Bank of India market operations.”

USDINR may have formed a bottom near 73.75/80 levels on spot: Kotak Securities

“When oil prices spiral higher a typical trade comes into vogue in the emerging market space, long FX of oil producers and short FX of major oil consumers. Higher oil prices are like a tax on consumers and consumption being over half of the Indian economy, higher oil prices tend to hurt the Indian economy more than it benefits on an aggregate basis. Due to this, Rupee and Rupee assets tend to underperform their peers around the world when oil prices inch towards the triple-digit mark. It was during 2018 when surging oil and rising US rates had triggered a big depreciation in the Rupee. However, this time around such a drive is missing. But keep a close watch. Such trades can suddenly make an appearance.”

“Technically, USDINR may have formed a bottom near 73.75/80 levels on spot. However, the open question remains, how long will it be before USDINR manages to move out of the 73.80-74.55 range and move higher? It needs a risk-off trigger for that to happen. One can focus on option selling to benefit from this range. One can even look to buy futures near the lower end of the range, as RBI intervention remains active.”

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