Rupee may depreciate on firm dollar, risk aversion in markets, FII outflows; USDINR to trade in this range


The Indian Rupee is likely to depreciate on Tuesday amid risk aversion in the global markets, persistent FII outflows and firm dollar. The local unit extended its losses and slumped 60 paise to close at all-time low of 77.50 against the US dollar in the previous session, pressured by the strength of the greenback overseas and unabated foreign fund outflows. Risk appetite has weakened amid mounting concerns about inflation that may trigger more aggressive rate hikes by global central banks, according to analysts. “A sell-off in the global equity markets which was triggered by the hike in interest rates by the U.S. Federal Reserve, the war in Europe and growth concerns in China due to the COVID-19 surge, led to the rupee depreciation,” Emkay Global Financial Services said in a note.

Rupee likely to depreciate: ICICI Direct

“The US dollar advanced amid risk aversion in global markets and hawkish statements from Fed officials. Market sentiments were hurt as investors fear that high inflation is threatening to eat into corporate profits and rein in consumer spending. Additionally, the outlook for the global economy is looking gloomy amid supply chain disruption,
lockdown in China and Russia’s war against Ukraine. Rupee future maturing on May 27 depreciated by 0.76% amid strong dollar, sell-off in domestic markets and persistent FII outflows. The rupee is expected to depreciate today amid risk aversion in the global markets and firm dollar. Market sentiments were hurt as supply disruption due to Covid-19 lockdown and war between Russia and Ukraine have heightened fears about how growth will hold up around the globe and on top of this major central banks are ending easy money era. Moreover, persistent FII outflows will hurt the rupee. US$INR (May) is expected to trade in a range of 77.45-77.90.”

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

“Rupee fell to fresh all-time lows yesterday as broader strength in the dollar continued following hawkish comments from the Federal Reserve. The central bank raised interest rates last week and the Fed governor mentioned that a couple of rate hikes were on table. Also major crosses like Euro, Pound and the Japanese Yen remained under pressure as concerns over higher inflation kept haunting their policy actions. Sterling fell to its lowest level since June 2020 after the Bank of England raised interest rates to their highest since 2009 but warned that the economy was at risk of recession.”

“Yesterday, minutes of Bank of Japan policy meeting were released and policy makers at the central bank remained unwavering in their resolve to keep massive monetary stimulus, even as some saw signs of change in the country’s low-inflation environment. Today, market participants will be keeping an eye on the German economic sentiment and a higher number could support the Euro at lower levels. As far as the rupee is concerned it could trigger after the inflation number that will be released later this week. We expect the USDINR(Spot) to trade sideways with a positive bias and quote in the range of 77.20 and 77.80.”

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

“Last Friday, US jobs data came in strong, and now the focus has turned towards US inflation data this week. CPI inflation for April is expected to slow down towards 8%. But if the actual print is higher than expected, it can propel yields and USD even higher. Therefore, Rupee has a tough weak ahead. After having broken above 77 levels, after 2 years, there is the possibility of this move extending towards 78.00 and even 78.50 levels on spot. Therefore, trade remains to be long USDINR, using options strategies like call spreads or long OTM call options.”

Tapish Pandey, Senior Research Analyst, SMC Global Securities

“The Dollar Rupee is likely to trade firm as investors shed riskier assets on worries about higher interest rates and their impact on economic growth, while the dollar held near 20-year highs. Oil prices also ticked lower on Tuesday on demand worries as corona virus lockdowns in China, the top oil importer, continued which will increase volatility further. On the chart, USDINR future is trading on higher top and higher bottom chart pattern and also given a breakout from the previous swing high near 77.18-77.20 levels which will act as immediate support zone for future while on the higher side facing resistance around 77.91-79.92 levels manage to sustain above which may edge higher more.”

“Overall trading setup indicates that positive momentum is likely to continue and for the day, we are looking at USDINR future to trade in the range of 77.20 to 77.60 zones with positive biases, where any dip towards lower range may be utilized as a trading opportunity by keeping a stop loss below 76.90 levels.”

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