The rupee slumped 31 paise against US dollar on Tuesday as riskier assets took a hit amid escalating geopolitical tensions. Sustained foreign fund outflows, lacklustre trend in domestic equities and elevated crude oil prices also weighed on investor sentiment. At the interbank foreign exchange, the rupee opened at 74.71 against US Dollar but later dropped to a low of 74.99 before finally settling at 74.86 against the greenback, down 31 paise from the previous close. The rupee is expected to depreciate on account of higher crude oil prices. Continuous FII outflows and risk aversion in global markets are also likely to weigh on the domestic currency.

“The dollar index edged higher on Tuesday amid improved macroeconomic data from the US and rise in US treasury yields. Further, risk aversion in global markets and escalating geopolitical tensions in the eastern Europe boosted the dollar. Rupee February futures depreciated by 0.24% on the back of elevated crude oil prices and pessimistic sentiments in the domestic markets. The rupee is expected to depreciate today due to higher crude oil prices. Additionally, consistent FII withdrawal from domestic markets and risk aversion in global markets are expected to weigh on the rupee. US$INR (February) is likely to rise further towards 75.25 levels for the day.”

“The Indian rupee has glided lower by around 0.50 percent amid the mounting tensions between Russia and Ukraine, which has hurt the risk sentiments in the markets and led to significant outflows. Besides, crude prices have soared to seven-year highs due to lingering supply worries, which is dragging down the Indian rupee. As of now, the dollar looks to remain well bid, owing to its safe-haven appeal in a backdrop of heightened geopolitical risks. This shall keep the Indian rupee under pressure in the near term. We envisage near-term support at the 75 mark for the domestic unit, a breach of which shall lead to further depreciation for the rupee-dollar exchange rate.”

“Rupee fell after Russian President Vladimir Putin ordered the deployment of troops to two breakaway regions in eastern Ukraine after recognising them as independent. Yesterday, UK PM said Britain will immediately impose hard economic sanctions on Russia after Russian president ordered the deployment of troops to two breakaway regions in eastern Ukraine. President Joe Biden said that the US was imposing a first tranche of sanctions against Russia for launching an invasion of Ukraine.”

“Reaction on the dollar remained muted after data released from the US showed manufacturing and services sectors, rebounded to 56 this month from 51.1 in January. Market participants are awaiting for more updates on the ongoing uncertainty between Russia and Ukraine that is likely to trigger volatility for the dollar. We expect the USDINR (Spot) to trade sideways with a positive bias and quote in the range of 74.40 and 75.20.”

“USDINR Feb futures closed 18 paise higher at 74.78, well off its higher for the day near 75.02. Rejection near 75 was on account of technical resistance level as well as reversal in sentiments in the global markets. As the European equity markets recovered from the day’s low, USDINR too retraced half of its gains. With Russia having made its move in Ukraine, possibility of further escalation appears low. Hence, markets may see lower risk of a blowout in USDINR.”

“However, oil prices continue to climb and that remains a worry. But with oil near 100 and Rupee still below 75, there is difficult to build a case for a significantly weaker Rupee just on the basis of higher oil prices. USDINR having rejected the 75 handle is now vulnerable to a re-test of recent lows near 74.30. But having said that, if prices reverse higher and take out 75 with high volume, then we will revise our bias from downward to upward.”

“Technically, US Dollar Index (DXY) rises to 96.03 from an intraday low, extending the previous day’s fall from the weekly high into Wednesday’s Asian session. If DXY falls below 95.75, the possibility of a slide to the monthly low of 95.13 cannot be ruled out. Meanwhile, recovery moves could aim for a three-week-long falling trend line inside the channel, which, if broken, would send the US Dollar Index to the channel’s upper level near 96.60.”

“While on the domestic front USD/INR February has breached 15-SMA on the upside on hourly charts. Prices may test support in the range of 74.70-74.67, as an intraday gap has been created here in yesterday’s session. On the upside 75.03-75.05 may act as immediate resistance zone, sustaining above this zone may push prices up to major resistance area of 75.18-75.20 zone.”