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Tuesday, January 31, 2023

Rupee may appreciate next week on corporate inflows, easing Dollar index

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The Indian rupee is expected to appreciate in the coming week due to likely corporate inflows, and easing crude oil prices and the Dollar index, dealers said.

Since the start of this month, the Rupee has been a little volatile and traded in a thin range.

“Inflows amounting to $1.1 from the Yes Bank stake sale are expected next week. A major bank would be raising funds on 14th December, and a few IPOs are lined up next week. Hence, inflows are expected. A possible fall in the Dollar index should ensure that the Rupee appreciates  to Rs. 81.50-82.75 to a Dollar,” said Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors.

“Falling 10-year US treasury yields, a plunging Dollar index, a falling USDCNH, and declining Brent crude prices seem to all favour the Rupee, though maybe with a lag. Corporate flows may also continue to assist the Rupee,” said Kunal Sodhani, Vice President, Shinhan Bank. “For USD:INR, 81.80 acts as an immediate support, followed by 81.40, while 82.75 may see strong resistance.”

Forex dealers said that gains may be capped as traders will be keenly watching the policies of major central banks. “Policies of the US Federal Reserve (the Fed), the European Central Bank (ECB), and the Bank of England (BoE) will be impacting the week,” Sodhani added.

Also read: MC Interview: Rupee likely to be less volatile next fiscal, says Crisil economist Dipti Deshpande

RBI Governor

The Rupee has appreciated 3.2 percent in real  terms between April-October, even as several major currencies have depreciated. The story of the Rupee has been one of resilience and stability, said Reserve Bank of India (RBI) Governor Shaktikanta Das, addressing the RBI Monetary Policy Committee (MPC) on Wednesday, and added that it should be allowed to find its level. On Tuesday December 6, the Rupee ended at 82.62 to the Dollar against Monday’s close of 81.79. It opened at 82.66 on December 7 and appreciated to 82.44 during Das’s speech.

“It is important to make an objective assessment of the movement of the INR in the context of global and domestic macroeconomic and financial market developments. Through this period of the Dollar’s appreciation, the INR’s movements have been the least disruptive relative to peers. In fact, barring a few, the INR has appreciated against all major currencies,” Das explained.

Regarding forex reserves, the Governor said that the  reserves were ample and had in fact expanded. During the week ended November 25, forex reserves rose $2.89 billion to $550.14 billion, according to the RBI’s Weekly Statistical Supplement.

“We had announced a series of measures in July to enhance forex inflow. As a result, new External Commercial Borrowing (ECB) agreements have been concluded for $8.6 billion,” Das said.

Also read: How is e-rupee different from UPI? | Five takeaways from the RBI governor’s press conference

How the Rupee fared today?

The Rupee appreciated nearly 15 paise on Friday against the US Dollar on the easing Dollar index and crude oil prices. Some analysts feel that the Dollar index may be trading lower due to concerns of a slowdown of the US economy. Eyes are set on  the Fed’s policy meeting next week, which is expected to give some clues about the future trajectory.

“The Rupee traded in thin range as oil companies continued buying Dollars preventing the Rupee from gaining much, despite the fact that the Dollar index was down at 104.77 and Asian currencies were all up,” Bhansali added.

On a weekly basis, the Rupee registered a decline. As per Dilip Parmar, Research Analyst, HDFC Securities, rupee registered the biggest weekly decline after 07 October after RBI hiked the interest rate by 35bps and held the accommodative stance. Market participants are cautious ahead of next week’s US inflation data and Fed policy decision.

In the near term, the spot USDINR is expected to trade in a broad range of 81.25 to 83,” Parmar added.





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