Indian rupee may depreciate further on Wednesday amid strong dollar, continuous FII outflows, risk aversion in markets and elevated crude oil prices. Rupee may trade in the range of 77.20-78.50 in next couple of sessions, according to forex analysts. In the previous session, the rupee slipped to close at a new low against the US dollar as a massive sell-off in domestic equities and stronger greenback overseas on investor sentiment. Persistent foreign capital outflows and elevated global crude oil prices also impacted the domestic unit. At the interbank foreign exchange market, the local unit opened at 77.72 and traded between 77.69 – 77.73 range before settling at 77.73, down 7 paise over its previous close.
Praveen Singh, AVP- Fundamental currencies and Commodities analyst, Sharekhan
“Indian rupee depreciated on Tueaday on weak domestic markets and strong dollar. Equity markets declined by about a percent. Surge in crude oil prices and FII outflows also put pressure on the Rupee. FIIs sold about Rs. 2,397 crore on Monday, while crude oil is trading around $120/barrel. Rupee is expected to remain weak on risk aversion in global markets and strong dollar. Dollar jumped as 10-year US Treasury yields climbed over 3% ahead of the US inflation data due Friday and expectations of 50 bps rate hike in FOMC meeting next week. Traders may remain cautious ahead of RBI’s monetary policy tomorrow. There are expectations of a 0.1%-0.5% rate hike. Rupee may trade in the range of 77.20-78.50 in next couple of sessions. We suggest buying the dips.”
“Focus will now be on the CPI number that will be released from the US this Friday. A higher number is likely to extend gains for the dollar and build further prospects of aggressive rate by the Fed. Pound rose against the US after falling to a three-week low against the greenback on the heels of British Prime Minister Boris Johnson escaping a confidence vote that left him politically wounded.We expect the USDINR(Spot) to trade with a positive bias and quote in the range of 77.40 and 78.20.”
Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities
“USDINR futures moved up by 10 paise once the spot closed. Offshore is keeping USDINR around 77.95 on June futures, where it closed here at 5:00 pm IST. Spot and futures, both are very close to a breakout. Not just USDINR, event Indian 10-year yields are showing prospect for further run up. If yields move up, it can drag USDINR as well, as FPIs may pull out more investments in the equity and the debt markets. In today’s policy, RBI is expected to raise rates by 25 bps but possibility of a 50-bps is also increasing. RBI may not tinker with CRR but the tone can be quite hawkish. Impact of a rate hikes on Rupee is very contextual.”
“In the present context where expectation of lower growth and higher cost of capital is pushing FPIs out of Rupee assets, a rate hike may be slightly negative. Even if Rupee were to appreciate on a hike but eventually it may come under pressure, as RBI is far off from peak rates. Generally, when RBI nears the peak of the rate cycle and market sees inflation topping out, then a rate hike can lead to durable rally in the currency, which is not the case now. Technically a clear break above 77.80 on spot and 78.00/78.05 on June futures can trigger a 40/50 paise run higher.”
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