Indian rupee expected to appreciate amid rise in global markets risk appetite; dollar index may decline till 101

Indian rupee expected to appreciate amid rise in global markets risk appetite; dollar index may decline till 101.40

By Raj Deepak Singh

Rupee appreciated last to last week amid weak dollar coupled with rise in risk appetite in the global markets. Market sentiments improved as concerns over the US banking sector ebbed. USDINR after facing strong resistance near 82.50 levels made a low of 82.03 last week. Further, currency firmed on anticipation that US Federal Reserve was near the end of its rate hiking cycle. In the current financial year, Rupee has depreciated by almost 7.5% compared to last year’s march. It has depreciated from 75.90 to 82.20 till now.

Further, Non-farm payroll data is projected to show that less number of jobs were added to the economy in March 2023. Forecast for upcoming economic data from the US seems to signals that the economy is feeling the heat of a rate hike. The lagged effect of the Fed’s aggressive rate hike is beginning to take its toll and tightening credit conditions is having a material impact on the U.S. labour market.

We expect Indian Rupee to appreciate further amid the soft dollar and rise in risk appetite in the global markets. Market sentiments are improving on fading concerns about global banks and mounting hopes that the Federal Reserve could soon pause its interest rate increases. Further, the Reserve bank of India is likely to hike the repo rate by 25bps taking it to a 7-year high of 6.75% as inflation continues to remain above RBI’s comfort zone. Investors will focus more on a statement from the central bank to get the cues on future monetary stance as the market anticipates this hike to be last and a pause for the rest of the year.

Over the past couple of months, USDINR has failed to breach the 83 level despite global volatility. We expect the USDINR pair to appreciate towards the 81.70 level this week as long as it sustains below the 82.50 level. USDINR may face an immediate hurdle near 82.30 levels, which is also a 20-day EMA. A break below 81.70 levels may push the pair further downside till 81.45 levels. Only a sustained close above 83.00 levels may reverse the ongoing appreciation trend.

For Monday Rupee’s future maturing on April 26th may appreciate further till 82.10 levels as long as it sustains below 82.50 levels amid soft dollar and optimistic global market sentiments.

(Raj Deepak Singh is Analyst – Currency, Commodity & derivatives at ICICIdirect. Views expressed are author’s own.)