Rupee likely to trade left in coming days amid strength in dollar index, weaker regional peers

Rupee likely to trade left in coming days amid strength in dollar index, weaker regional peers

By Dilip Parmar

In the week gone by, the rupee chocked the first weekly decline in four amid weaker regional currencies and foreign fund outflows. Spot USDINR gained 88 paise to 81.69 while the dollar index was up 0.6% to 106.93. Stocks fluttered higher to wrap up a low-voltage week that saw the Dow Jones finish virtually unchanged while the Indian benchmark Sensex closed with a minor loss. The dollar strengthened following US Treasury yields which continued to climb a day after hawkish comments from St. Louis Fed President James Bullard, who said interest rates needed to rise at least to 5%-5.25% to curb inflation.

Indian rupee is expected to trade left in the coming days following strength in the dollar index and weaker regional peers. However, the loss could be limited following a fall in crude oil prices and foreign fund inflows. Technically, spot USDINR could add gains in the coming days but the trend has turned bearish with lower top and bottom formation on the daily chart. The pair is expected to trade in the range of 82.40 to 81.30 in the next few days. Markets are a bit muddy as equities, dollar and yield all are rising amid mixed economic data.

Theoretically, lower rates generally mean higher stocks and lower dollars but slower spending will mean lower earnings and haven demand for dollars. Money-market derivative traders continue to price in that the Federal Reserve will reverse course and begin cutting rates in the later part of 2023 despite a fresh round of hawkish rhetoric this week from Central Bank officials.

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Low trading activity, modest share gains and the upcoming US holiday are helping send implied volatility broadly lower. An index of one-week dollar implied vol falls to 10.3%; compares to 10.6% for 3 months and a nearly unchanged 10.1% for the one-year.

(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own. Please consult your financial advisor before investing)