Rupee to end the year on a weaker note against US greenback; USDINR pair to trade with a positive bias today

In the last few sessions, movement in the rupee has been led by RBI intervention and weakness in the dollar index.

Rupee outlook
Near term outlook for USDINR remains bearish (File Photo PTI)

Indian Rupee ended modestly firmer against the US Dollar at the end of Tuesday’s trading session on account of foreign banks’ sales on greenback behalf of exporters. The domestic unit ended at 74.99 compared with 75.02 in the previous session. Technically, if the USDINR Spot pair closed below the psychological level of 75.00, the support zone for the USDINR is 74.45 -74.30 levels. However, a trade above 74.80 could push the pair to the resistance zone at 74.98 -75.10 levels, said Kshitij Purohit, Lead Commodity & Currency at CapitalVia Global Research.

Rupee outperformed among Asian currencies following risk-on sentiments and weaker dollar index. It was up for the ninth day in trot as state-run banks remain sellers on behalf of exporters. Forex markets volume remains thin in light of the new year holiday. Near term outlook for USDINR remains bearish and we could see a level of 74.50 in the next couple of days while resistance has been shifted to 74.90, said Dilip Parmar, Research Analyst, HDFC Securities.

In the last few sessions, movement in the rupee has been led by RBI intervention and weakness in the dollar index. Most market participants have been on the sidelines on account of Christmas and New Year holidays suggesting that the move has been on the back of thin volumes. This week, on the global front, no major economic data is expected to be released and on the domestic front focus will be on the fiscal number. The USDINR (Spot) is likely to quote in the range of 74.40 and 75.20,” said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.

RBI intervention, inflation trajectory, crude prices to guide INR in the short to medium term

The Indian rupee will end the year on a weaker note against the dollar for another year. Historically, the rupee has depreciated against the dollar in the range of 1-3% on-year basis, and this year was no different, the INR depreciated almost 2% vs the USD. The rupee traded in the range of 72.263-76.419, the rupee has recovered somewhat from the lowest level witnessed earlier in the month. One of the major factors for the decline was the imminent liquidity tapering by the US Fed and other central banks. FIIs have pulled out over Rs 30,000 crore from the Indian equity market leading to some nervousness in the key indices as it trades a few percentage points below its all-time high, said Nish Bhatt, Founder & CEO, Millwood Kane International.

The concerns of liquidity tapering and rising inflation make it tough for central banks to stay put with Accommodative policy, the scenario will force liquidity tightening & rate hikes by the RBI somewhere in 2022, its effect is already reflected in the performance of the INR. The performance of INR has been one of the worst among its Asian peers. RBI intervention, inflation trajectory, movement of crude prices, and pace of liquidity unwinding by global central banks will guide the INR in the short to medium term, he added.

USDINR pair expected to trade with positive bias in 73.50-77.50 range

“Rupee in 2021 consolidated in a broad range of 72.50 and 75, but just before the year-end, it surpassed the barrier and hit a high of 76.50. Suspected RBI intervention kept the volatility in control and led to stabilising the currency. The central bank has played a major role in curtailing the volatility of the rupee and, at the same time, has built a good quantum of FX reserves to deal with future uncertainty, if there is any. The recent weakness in the rupee was seen after the FIIs started to pull out of funds from the India equities and also as the trade deficit widened to record high levels following rise in crude oil, coal and gold imports. On the other hand, losses have been restricted also after CEA exuded confidence that India would achieve double-digit growth in the current financial year on the back of policy initiatives and continuing reforms, said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

The government expects that overall growth will be supported by supply-side push from reforms and easing of regulations, infrastructural investments, boost to manufacturing sector through the PLI schemes, recovery of pent-up demand, increase in discretionary consumption subsequent to rollout of vaccines and pick up in credit. In the coming year, investors will be backing up on better domestic fundamentals that would support the rupee, but at the same time policy normalization could extend gains for the dollar. The recent move in the dollar suggests that the range has shifted higher. Further lows in case of the rupee could be bought in, and all the above factors mentioned will be important to determine trend for the rupee. The USDINR pair is expected to trade with a positive bias and with the range of 73.50 and 77.50” he added.

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