Rupee likely to depreciate on strong dollar, bond yields; USDINR to trade with positive bias in this range

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The Indian rupee is likely to depreciate on Monday amid strong dollar, bond yields, and risk aversion in equity markets. USDINR(Spot) may trade positive and quote in the range of 81.05 and 81.50. Rupee depreciated 30 paise to close at a fresh lifetime low of 81.09 against the US dollar in the previous session, while it slumped by 83 paise on Thursday, its biggest single-day loss in around seven months. Finance Minister Nirmala Sitharaman on Saturday said that rupee ‘held up very well’ against the US dollar in comparison to other currencies. “If any one currency that did not get into the fluctuation of volatility as much as other currencies, it is the Indian Rupee. We have held up very well against the US dollar,” Sitharaman said.

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“Rupee fell to fresh all-time lows on Friday as the dollar continued to strengthen as fears grew that a Fed prescription of raising interest rates to tame inflation will drag major economies into recession.The pound weakened further after the UK govt announced huge debt-financed tax cuts that will boost borrowing, sending UK bond yields vaulting higher in their biggest daily increases in decades. The currency is now down 10% since the start of July and on track for its worst quarter since 2008, pressured by the strong dollar, sluggish British growth and red hot inflation.”

“During the weekend, North Korea fired a ballistic missile towards the sea off its east coast ahead of planned military drills by South Korean and U.S. forces involving an aircraft carrier and a visit to the region by U.S. Vice President Kamala Harris. Also, political instability in China has disturbed the overall economic sentiment and is keeping the Chinese Yuan weighed down. We expect the USDINR(Spot) to trade positive and quote in the range of 81.05 and 81.50.”

Suvodeep Rakshit, Senior economist at Kotak Institutional Equities

“The INR was trading in a range of 79-80 against the USD prior to the September FOMC meeting. After the FOMC meeting, a distinctly more hawkish Fed implied a strengthening dollar. The INR range also had to shift higher which has been supported by RBI interventions. We expect the INR to range between 79-83 for rest of FY23 on the back of USD strength, risks for CAD remaining wider than usual and limited room for lesser FX interventions and let the INR depreciate gradually to address external imbalances. Some of the favourable factors could be lower crude and other commodity prices and FPI debt flows in case of an announcement of bond index inclusion.”

Amit Pabari, MD, CR Forex Advisors

“Indian Rupee tested all-time-low on Friday. After hitting a low of 81.22, it was seen recovering back to 80.77, probably RBI hammered a few yards of USD. But still, it was seen closing at 80.98 as importers rushed to cover USD. Amid a liquidity deficit of more than 21,000 crores in the banking system, RBI will have lesser room to step in and curb rates and volatility. Despite the deficit, RBI might have used its reserves as FX storage fell by another $5.22 billion to $545.65 billion.”

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“The upcoming RBI’s monetary policy, which is due on the 30th Sep will be important as the announcement on the repo rate hike, cut in CRR, and changes in stance will be watchful. Nonetheless, currency market players want an early dose of injection to calm down the shaky nerves. However, further strength in the USD globally could not keep the Rupee trading at an exceptionally fine. Overall, we expect the USDINR pair to remain volatile with downside support at 80.50 and strong bullish momentum could not rule out 82.50 levels on the upside,” Pabari added.

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