Rupee to depreciate on strong dollar; falling crude prices may cap downside, USDINR to trade in this range

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By Raj Deepak Singh

Rupee depreciated this week to a new all-time low and touched 81.2750 level amid sharp rise in US dollar index. Further, rupee was pressurised by weakness in domestic equity markets and fresh FIIs outflows. Dollar index surged by almost 2% to a fresh two-decade high this week after the Federal Reserve raised interest rates by another 75 basis points as expected and signalled larger increases at its upcoming meetings. Further, steep rise in US 10 years’ treasury yields supported US dollar. Moreover, continued better macro-economic data from the US supported dollar. The number of Americans filing new claims for unemployment benefits rose to 213,000, below market expectations of 218,000.

We expect the US dollar to appreciate further in the coming week and surpass new two-decade highs of 111.82 to touch 113 level amid expectations of a further aggressive interest rate hike from the US Fed in the coming meetings. Euro gained some support as the German government said they will provide urgent financial support to regional state-owned energy providers, which are struggling to cope with soaring gas prices. Weakness in crude oil prices should provide a cushion to rupee post sharp fall towards 81 levels. Moreover, Investors will keep an eye on interest rate decision from RBI and major economic data from the US like CB consumer confidence and GDP data.

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Reserve Bank of India is also expected to rise interest rate from 5.40% to 5.90%. which will eventually help Indian bond yield to rise further. USDINR traded largely in a triangle pattern where it traded towards the support level at 79.20 and then rebounded back towards the resistance level of 81.00. The pair is expected to continue trading in upward trend towards the level of 81.30 after breaking the resistance level of 81.00. However, upsides seem capped for time being as there are some supportive factor for INR whereas rise in Dollar index should limit gains so we expect a consolidation in INR.

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(Raj Deepak Singh is an Analyst – F&O, Currency, and Commodities at ICICIdirect. The views expressed are the author’s own. Please consult your financial advisor before investing)