Rupee likely to depreciate further due to high crude prices, stronger dollar; USDINR to trade within this range
The Rupee is expected to depreciate further today, due to higher Crude Oil prices and a strengthening Dollar. Additionally, risk aversion in global markets could further strengthen the dollar.
The rupee plunged 24 paise against the US currency at the close on Friday amid fears of an aggressive rate hike by the Federal Reserve after US inflation hit a 40-year high in January. Weak domestic equities, sustained outflows of foreign funds and high crude oil prices also weighed on the local unit. On the interbank exchange, the rupiah opened at 75.40 against the greenback. It saw an intraday high at 75.27 and a low at 75.46 before finally stabilizing at 75.39, down 24 paise from the previous close.
“The Rupee is expected to depreciate further today, due to higher crude oil prices and a stronger Dollar. In addition, risk aversion in global markets could further strengthen the Dollar. Inventors will now keep a eye on India’s WPI inflation data INR USD (February) is expected to rise further towards the 75.80 levels,” ICICI Direct said in its report. The Rupee has become the worst performing currency among its Asian peers due to policy divergence, broad-based US currency strength, risk aversion sentiments and foreign fund outflows
Gaurang Somaiyaa , Forex & Bullion Analyst, Motilal Oswal Financial Services
“The rupiah traded in a narrow range but fell sharply on the NDF as investors worry about escalating tensions between Russia and Ukraine. Investors are already worried about inflation and of rising interest rates, sales of US stocks accelerated after the United States warned that Russia had massed enough troops near Ukraine to launch a major invasion and that an attack could start overnight.Investors are pricing in a half-point rate hike in March with just a slim chance of a smaller quarter-point increase, and big bets for a policy trajectory that would bring rates back to a range of 1.75% to 2.00% by the end of the year.”
“Over the weekend, Ukraine called for a meeting with Russia and other members of a key European security group over escalating tensions on its border. Some Western countries have warned that Russia is preparing for an invasion, with the United States saying it could start with aerial bombardment “at any time”. More than a dozen countries have urged their citizens to leave Ukraine, and some have withdrawn embassy staff from the capital. The Dollar rose against its major crosses as uncertainty continues to rise. Over the next few sessions, market participants will be waiting for more clarity on the current uncertainty and this should provide clues for most currencies. We expect the USDINR (Spot) to trade with a positive bias and quote in the range of 75.20 and 75.80.
Heena Naik, Currency Research Analyst, Angel One Ltd
“During Friday’s session, the USDINR spot widened as it opened at 75.38 levels from the previous close of 74.93 levels. After opening, it immediately moved into bullish territory towards the levels On the other hand, USDINR Feb Futures also hit a high of 75.65.The main reason for this uptrend could be attributed to the rally seen in the offshore NDF market as well as the certain alleged corporate purchases of dollars.
“Additionally, the US Dollar Index also remained in bullish territory following the release of US CPI data which showed the highest inflation since 1982. Going forward, we expect both the USDINR Spot (CMP: 75.34) and USDINR Feb’22 Futures (CMP: 75.45) to continue their uptrend and head towards the 75.70 and 76.10 levels respectively.
Aanindya Banerjee, Currency Derivatives, Kotak Securities
Escalating tensions between the West and Russia over Ukraine have pushed Brent crude closer to the 100 mark, currently at $95.60, the highest level since September 2014. Add to that the growing expectation of a 50 basis point rate hike from the US Fed in next month’s FOMC, there is a double negative brew for the Indian Rupee.
“However, the Rupee held up due to factors such as healthy trade flows (FDI + ECB) and a positive real rate differential between the Rupee and the US Dollar. We have seen that this is when this differential becomes significantly positive in favor of the $ that the risk of a sharp depreciation increases Bias is to the upside as long as prices hold above 75.00 in place Focus on bullish strategies with a closing stop below of 75.00 as a spot reference.
Kshitij Purohit, Head of Commodities and Currencies at CapitalVia Global Research
“After the Reserve Bank of India announced a fortnightly ‘super-dovish’ policy, the cost of currency risk insurance plummeted. Term premiums across all maturities fell by 60 basis points in just two trading days, potentially helping overseas investors and local borrowers/importers with overseas commitments immediately ahead of the LIC of India’s main equity selloff.Following the release of US index data consumer price index on Thursday, which has raised concerns in financial markets, USD/INR is looking to break higher with the US dollar being the strongest of the major currencies.
Warmongering comments from the Federal Reserve’s James Bullard further bolstered expectations of a 50 basis point rate hike in March. Bullard’s brash comments, in which he said the data had made him “significantly” more hawkish, sent U.S. Treasury yields higher. Technically, USD/INR is forming a “Double Bottom” candlestick chart pattern on the daily charts. We may see price testing support in the 75.05-75.00 area, which is the boundary line of this setup, before any significant breakouts. Although on the upside, prices could be challenged in the 75.58-75.60 area.
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