Financial Market

Rupee likely to depreciate amid risk aversion in markets, FII outflows; USDINR pair trade in this range

The Indian Rupee is likely to open higher around 77.50 levels with an expected intraday range of 77.30 to 77.70. More than the spot market, volatility can be observed in the forwards market. The domestic currency is likely to trade in a wide range of 76.60 to 78.00 over the short term as RBI’s aggressive intervention and FDI flows are restricting to depreciate as per the sluggish fundamentals. In the previous session, the rupee closed at a new all-time low of 77.73 against the US dollar, the fifth record weak close in the last ten trading sessions, even as the dollar took a breather after heavy gains and global stocks tumbled on increasing concerns that aggressive tightening by global central banks could choke economic growth.

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

“USDINR spot closed at a fresh all time high at 77.72 levels, up 14 paise, as FPI remained sellers in bonds and equity. However the gains were muted as US Dollar Index was weak. Over the near term we expect USDINR to maintain an upward drift but the overall price action will be of a range. A broad range of 77.30 to 78 is expected on spot.”

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

“Rupee consolidated in a narrow range despite sharp sell-off in domestic and global equities. Dollar too retraced from higher levels after economic number released from the US came below estimates. Housing numbers released from the US yesterday came in below estimates. On the other hand, Japanese Yen rose following safe haven buying as uncertainty on back rising inflation increased. Today focus will be on Philly Fed manufacturing index to gauge for the dollar. We expect the USDINR to trade with positive bias and quote in the range of 77.20 and 78.05.”

Amit Pabari, MD, CR Forex Advisors

“The world’s two biggest countries’ central banks are on a diverging path as Fed is on course to do a third-time rate hike in June, while PBoC slashed the 5-year PLR by 15 bps to 4.45%. We are in a state of a highly volatile financial market due to worries over inflation and growth. The risk-aversion trade helped USD strengthen against the EM FX in Asian and European trade yesterday. However, strength in funding currencies such as Euro and Pound didn’t allow it to remain on a stronger note and thus US DXY corrected towards 102.70 levels. Global equities are on a roller coaster ride as can be perfectly seen over the rising CBoE VIX (volatility index). The Emerging Market currencies are quoting positive and thus Rupee too likely to open higher around 77.50 levels with an expected intraday range of 77.30 to 77.70.”

“More than the spot market, volatility can be observed in the forwards market. Since 9th May, the one-year hedging cost(for importers) or forward premium gain(for exporters) fell from 4.20% to 3.68% or from 3.25/- to 2.86/-. So ideally for exporters, the All-time-High rate in USDINR is not fetching anymore higher forward rates. The RBI could be a bigger participant in the forward market as the recently released Bulletin also suggests that they are holding forward book worth almost $66 billion. In a nutshell, we expect Rupee to trade in a wide range of 76.60 to 78.00 over the short term as RBI’s aggressive intervention and FDI flows are restricting to depreciate as per the sluggish fundamentals.”

(The recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Market investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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