Despite Rise in US Yields and DXY, USD/INR Maintained its Stable Undertone

  • by THO
  • 2 weeks ago
  • news
  • 1

opened the day a tad higher at 74.50 registering an overnight gain of 13 paise/USD over its previous day’s close. Despite the steep rise in the and surge in US yields, the currency pair maintained a stable undertone and is expected to trade in the range between 74.30 to 74.60 in the remainder of this week.

After witnessing bouts of currency volatility in the last 1 month period, the rupee has now stabilized and currently remaining rangebound in the 74.30-60 zone. The buoyancy in the local markets and the incidence of lower global oil prices maintained a narrow range in the rupee. We expect to see the domestic currency trading with a neutral bias in the range between 74.00 to 75.00 till the end of the first half of December 2021.

The forwards have started to drift lower across the maturities with the 3-month and 6-month forward dollar premium registered a fall of more than 25 bps in the last one week period. We strongly feel that any weakness in the rupee exchange rate toward 74.60 level or lower shall induce strong selling interest from exporters against their medium-term receivables to achieve higher export realization.

The only worrisome factor for the rupee is the quickening of rate hikes by the Fed after the completion of asset purchases by the Fed by June 2022. The 2, 5 and 10-year US yields are now trading near to the multi-month highs and any statement from Fed on rate hikes shall push the yields higher which could lead to a weakening trend in the rupee exchange rate. In the interim period from now to the end of December 2021, we do not expect the rupee to breach the 75.00 support and hence we feel hedging of short-term import payables may be deferred by keeping a strict stop-loss at 74.80.

The dollar and US Treasury yields continued to rise on the view that the US Federal Reserve would raise interest rates in July-August next year, as the world’s largest economy saw inflation hit 6.2% in October near a 31-year high. An overnight surge in the greenback close to a 16-month high and US yields moving closer to 1-year high dent sentiment for the Indian currency but likely gains in local equity markets are expected to aid the Indian currency.

The euro fell below 1.13 level first time since 14-7-20 on expectations that the ECB would stick to its dovish policy settings in the near term against the backdrop of a slowing economy. Euro traded a low of 1.1262 level today. Joe Biden and Xi-Jinping started their virtual meeting with both leaders stressing their responsibility to the rest of the world to avoid conflict, with the Chinese leader calling the US President an “old friend”. is trading at near 5-1/2-month high and it touched a high of 6.3632, the highest since 1-6-21.

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