Sharp Rise in US Yields and Fall in Local Stocks Buoy the USD/INR to Remain Firm

  • by THO
  • 1 week ago
  • news
  • 1

The opened the day a tad firmer at 74.48, registering a gain of 8 paise/USD due to rising supported by the renomination of Jerome Powell for the second term as Fed Chair. We expect the currency pair to test the high of 74.80 during the course of this week.

During the period from end-December 2020 till date, all the Asian currencies had depreciated against the dollar with the exception of the Taiwanese dollar and showing a gain of 2.50% and 2.26% respectively. Thai Baht and Korean Won led the currency fall at 8.77% and 8.52% (in absolute terms) respectively. It should be noted the registered a whopping gain of 24% but the domestic currency has depreciated by 1.60%, the lowest depreciation recorded amongst the Asian currencies.

The dollar is currently trading near a 16-month high of 96.55 and the euro slipped to a low of 1.1224 today which is also a 16-month low. Concerns over the rising numbers of covid-19 cases in Europe also saw investors turn towards the safe-haven currency. Bullish comments from US Federal Reserve officials boosted the US currency. Some of the Fed officials suggested that faster asset tapering could be appropriate as economic recovery quicken hikes than expected earlier.

From an all-time high of 62,245.43 registered by the BSE Sensex on 19-10-21, the Sensex ended at 58,465.89 on Monday registering a fall of 6.07% in about a month. The also ended lower at 17,416.55 on Monday. This down move could activate the pattern and as a result of this, we could see a fresh leg of correction in the coming days. Bears have tightened their grip pulling down the BSE Sensex by 1107 points (1.96% fall) on Monday.

Investors expecting interest rate hikes by major Central Banks may dent the global recovery, potentially hurting demand for oil and fuel. As the inflation in the US and Europe surged, the dollar index retreated moderately from the 16-month high of 96.6150 to currently trading at 96.52.

During the previous week, the forwards were showing gradual fall across the maturities. But the paying interest in the market was seen at the beginning of the week which pushed up the 3-month and 6-month forward dollar premium to currently trading at 4.05% and 4.85% per annum respectively. Encouraged by lower global oil prices, we expect the rupee to hold the support at 74.80. The expected stability in the rupee exchange rate shall deter the importers from hedging their short-term payables. We advise the importers to keep a strict stop-loss at 74.80 in the event of any sudden weakness in the domestic currency which is unexpected by the market participants as of now. However, the sharp drop in the local equity market poses a concern in the immediate term.

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