Rupee may slip on firm dollar, elevated crude oil prices; USDINR pair to quote sideways in this range

The Indian rupee surged 31 paise to close at 74.03 (provisional) against the US dollar on Monday amid robust buying in domestic equities. At the interbank forex market, the local unit opened at 74.15 against the US greenback and witnessed an intra-day high of 74.03 and a low of 74.21 before finally settling at 74.03, a rise of 31 paise over its previous close. The domestic currency on Monday strengthened to its highest level in nearly two months supported by dollar inflows. Meanwhile, the benchmark 10-year bond yield hit fresh 2-year highs on the back of uptick in US Treasury yields and global crude oil prices. In the previous session on Friday, the rupee had settled at 74.34 against the US dollar. The dollar index, which measures the strength of the greenback against a basket of six currencies, increased 0.19% to 95.90.

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

“Rupee rose following broad weakness in the dollar against its major crosses and gains in domestic equities. Market participants remain cautious ahead of the important inflation and industrial production number that will be released on the domestic front later this week. An uptick in inflation and slower growth in industrial production could weigh on the rupee. Yesterday, in the US session, the dollar rose on expectation that the Fed would raise rates as early as March. At the same time, the greenback extended gains as the benchmark U.S. 10-year Treasury yield rose to its highest level in almost two years.”

“Today, investors will be getting cues from the Fed Chairman’s testimony that is expected to be a little hawkish and extend gains for the dollar. U.S. December consumer inflation data is due to be released tomorrow, with headline CPI seen coming in 7% on a YoY basis, boosting the case for interest rates to rise sooner rather than later. We expect the USDINR pair to trade sideways and quote in the range of 73.80 and 74.50.”

ICICI Securities

The US dollar rose 0.27% on Monday as recent job data was seen solid enough to keep the Federal Reserve tightening path intact. The market expects the US Federal Reserve to be more aggressive in tightening monetary policy to tame stubbornly high inflation. Rupee future maturing on January 27 appreciated by 0.38% on a rise in risk appetite in domestic markets. However, further gain was prevented on elevated crude oil prices and strong dollar.

The rupee is expected to depreciate on a firm dollar and risk aversion in global markets. Further, the rupee may slip on elevated crude oil prices. Furthermore, the market expects the US Federal Reserve to be more aggressive in tightening monetary policy, which may prompt foreign investors to pump out liquidity from emerging markets like India. Additionally, investors will remain vigilant ahead of US Federal Reserve Chairman Jerome Powell’s testimony for clues on timing and speed of rate hikes.

Kshitij Purohit, Lead Commodity & Currency, CapitalVia Global Research

“The rupee rose against the US dollar, as a considerably lower-than-expected increase in job creation in the world’s largest economy dimmed expectations that the Federal Reserve would choose to accelerate its monetary policy tightening. When it comes to determining the path of interest rates, the data is a critical variable used by the Federal Reserve. Over the last few months, the Fed has hinted at a faster rate of policy normalization than previously anticipated.”

“US 10-year rates are still robust at 1.75-1.76%, but the dollar index has fallen substantially, causing traders who had bet against the rupee to unwind their positions, causing the rupee to rebound. Because the RBI has been intervening on the opposite side (dollar buying) when the rupee has hit 74.10-74.20, we do not see a sustained fall below 73.80. Range for today for USDINR 28th Jan Fut will be 74.05 – 74.40 for today’s session”.