Rupee may depreciate on firm dollar, risk aversion in global markets, USDINR to trade sideways in this range

The Indian Rupee is likely to depreciate on Thursday on strong dollar. Risk aversion in global markets, persistent FII outflows are also likely to weigh on the domestic currency. USDINR pair is expected to trade sideways. In the previous session, the rupee declined to close at its fresh lifetime low of 77.61 against the US dollar.

rupee vs dollar, dollar to rupee, usdinr
"Housing data released from the US also after permits for future U.S. homebuilding tumbled to a five-month low in April, suggesting the housing market was slowing as rising mortgage rates contribute to reduced affordability for entry-level and first-time buyers. Today, from the US, Philly Fed manufacturing index will be important to watch and that could trigger volatility for the dollar. We expect USDINR(Spot) to trade sideways and quote in the range of 77.05 and 77.80."

The Indian Rupee is likely to depreciate on Thursday on strong dollar. Risk aversion in global markets, persistent FII outflows are also likely to weigh on the domestic currency. USDINR pair is expected to trade sideways. In the previous session, the rupee declined to close at its fresh lifetime low of 77.61 against the US dollar amid unabated foreign fund outflows and concerns over aggressive rate hikes by the US Federal Reserve to tame inflation. A stronger greenback in the overseas markets and crude oil prices surging over 1% to USD 113 per barrel also weighed on the local unit. At the interbank foreign exchange market, the rupee opened lower at 77.57 and ended at its all-time low of 77.61, down 17 paise from its previous close.

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

“USDINR May futures closed 13 paise higher on the back of FPI outflows in bond and equity markets. US Dollar Index was higher for the day and even the equity markets traded with negative bias. However, we suspect RBI intervention may have been quite heavy and that prevented USDINR from moving significantly higher. There has been an interesting shift in performance of USDINR since RBI’s rate hike on 4th May.”

“From being an outperformer in April, Rupee is now one of the weakest currencies amongst its peers, possibly on account RBI’s flip flop on rates. Foreign investors remain sellers and the very hawkish stance from RBI will only make matters worse. Therefore, over the near term, we could see market trying to push USDINR higher but RBI will remain a seller near 78 levels to keep gains in check.”

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

“Rupee consolidated in a narrow range for the second successive session despite recovery in domestic and global equities. Earlier this week, the dollar retraced from higher levels even after retail sales number released from the US came in better-than-estimates. Yesterday, Global stocks plunged and the dollar strengthened for the first time in four sessions as concerns about rising inflation on economic growth soured sentiment. British inflation surged to its highest annual rate since 1982 as energy bills soared. Inflation surged last month to its highest annual rate since 1982, pressuring finance minister Rishi Sunak to offer more help for households and the Bank of England to keep raising interest rates despite a risk of recession.”

“Housing data released from the US also after permits for future U.S. homebuilding tumbled to a five-month low in April, suggesting the housing market was slowing as rising mortgage rates contribute to reduced affordability for entry-level and first-time buyers. Today, from the US, Philly Fed manufacturing index will be important to watch and that could trigger volatility for the dollar. We expect USDINR(Spot) to trade sideways and quote in the range of 77.05 and 77.80.”

Amit Pabari, MD, CR Forex Advisors

“Risk appetite remains short-lived as we have observed from the rare positive factors failing to stabilize the markets. Equities are being tested every single day while major currencies tumble against the rising US dollar index. US equity indices lost more than 3% in a single day yesterday bringing back the risk of the higher inflation into focus. The dollar index will be likely seen regaining its mark near 104 leading to the weakness across other DM and EM currencies. Earlier, the short-term positive sentiments were pushed by China opening its economy in major areas from the covid lockdown. However, the damage to China’s growth and its impact on the world economy has already been looked at. Today, the Indian rupee is likely to open weaker near 77.75 and is expected to trade in the range of 77.45 -78.00.”

“Domestically, the impact of the major fall in the US equities overnight will be reflected in the negative sentiment for the local equities and thus add pressure on the Rupee, besides major concerns of higher inflation, higher crude oil prices, and FII outflows. On the flows side, where FIIs are busy selling in the secondary market, FDI’s flows could help to set off the dollar outflow. The market is yet to analyze the likely dollar inflows from the Adani-Holcim deal as this will route through SPV (Special Purpose Vehicle). That apart, RBI’s intervention near 77.80-77.90 will be closely watched as it has to let the currency depreciate reflecting global weaker fundamentals. Overall, we expect the rupee to trade in a range of 77.30 – 78.50 in the short term.”

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