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Rupee may appreciate on optimistic market sentiments; FII outflows, elevated crude prices likely to cap gains

05 Jul , 2022   By : Monika Singh


Rupee may appreciate on optimistic market sentiments; FII outflows, elevated crude prices likely to cap gains

The Indian rupee is expected to appreciate on Tuesday amid optimistic global market sentiments. However, sharp gains may be prevented on elevated crude oil prices and consistent FII outflows. Additionally, investors fear that major central banks attempt to counter inflation by raising interest rates may lead economies into recession. US$INR (July) is expected to trade in a range of 78.90-79.30, according to ICICIDirect. In the previous session, the rupee paired its early losses and settled on a flat note against the US dollar. At the interbank forex market, the local unit opened at 78.97 against the greenback and fell to an intra-day low of 79.06. It finally settled at 78.94, unchanged from its previous close.


“The Indian rupee is expected to open steady as risk assets recover in the hope of rollback of duty by the US from China goods which could ease the supply concerns and help in lowering inflation. However, the sentiments remain bearish for the rupee amid dollar demand from oil importers while exporters may not be in hurry to sell the dollar which is a classic case of the demand-supply imbalance. The strength in the dollar index and higher crude oil prices also weigh on the rupee along with weaker macro data. Technically, USDINR is having resistance in the area of 79.15 to 79.30 and support at 78.80.

“The Indian rupee is reeling under pressure on the back of a rise in the dollar index towards a multi-decade peak, incessant portfolio outflows, soaring crude oil prices, and a rising interest rate regime. Besides, the rise in crude prices is leading to a lot of concerns about widening CAD, which is weighing on the rupee-dollar exchange rate. So to limit the decline in the Indian rupee which has depreciated by around 6.37% YTD, the government has imposed a windfall tax on domestic crude producers, imposed new levies on the export of petrol, diesel, and aviation turbine fuel (ATF), and hiked import duty on gold.”

“The country recorded a current account deficit of 1.2 percent of GDP in 2021-22 as against a surplus of 0.9 percent in 2020-21. Besides, the trade deficit has soared to record highs of $23.33 billion in May amid rising import bills. With this approach, the government will be able to fetch additional revenues as the Indian producers price their crude at international prices for sale to the domestic refineries, while making huge profits. These collective steps are likely to boost domestic fuel supplies and increase the government’s revenues while providing a cushion to the ailing Indian rupee, and we may see the domestic currency erasing some of the recent losses.”

Rupee consolidated in a narrow range as market participants remain on the sidelines as US markets remain shut on the back of Independence Day holiday. Global manufacturing struggled in June as higher prices and a darker economic outlook left consumers wary of making purchases. From the US to the euro zone, activity at factories slowed to levels last seen during the initial wave of the pandemic. Last week, data showed India’s factory output expanded at its slowest pace in nine months in June as elevated price pressures continued to dampen demand and output. Today, focus will be on the services PMI data that will be released from the Euro zone and the UK. Better-than-expected data could support maj crosses in the latter half of the session today. We expect the USDINR(Spot) to trade with a positive bias and quote in the range of 78.70 and 79.20.”


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