Absence of RBI Intervention Fueled Breach of 74.00 Support for USD/INR

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USD/INR opened the day a lot lower at 73.90, registering a loss of 12 paise/USD over its Monday’s close. The currency pair touched a low of 73.8475 so far in the day and RBI intervention is expected to take the currency pair much above the 74.00 level before the end of the day.

Buoyed by continuing huge IPO dollar inflows hitting the market, the rupee has breached the stiff resistance at 74.00 and tested a high of 73.8475 in a jiffy before making a moderate recovery above the 74 levels. As exports are showing robust growth in the last 4 months period, one can expect the RBI to absorb the dollar inflows on a continuous basis to prevent any sustained appreciation in the exchange rate beyond the 73.80 level. In view of the higher oil prices and a sharp increase in non-oil imports. The trade gap in each calendar month in the remainder of the current financial year is estimated to be around USD 20 billion per month.

The rupee is trading with a firmer undertone against the dollar as private and foreign Banks are selling dollars for overseas investments raising funds through IPOs. The IPOs in the pipeline are expected to bring in huge dollar funds which have led to a reversal of the rupee’s trend against the dollar. The rapid rise in the rupee to below the 74.00 level so soon is unexpected by the market, in the background of rising global oil prices. But the dovish rate trend by major Central Banks in the developed markets has fuelled a significant rise in the rupee, putting aside all the bearish market expectations of the rupee before the end of December 2021.

Though the Fed decision to begin tapering in November was on expected lines, Fed reiterated their view that inflation would be transitory and the inference that tapering is unlikely to result in rate hike soon and this view is being interpreted by the market as a dovish stance. As a result, the 10-year US yield has sharply dropped. Fed funds now have a rate rise fully priced by September 2022 instead of July, a second not until February 2023 instead of December 2022.

Brent prices extended gains after as OPEC plus continued to ignore calls by US President for higher output. Brent oil gained more than 1% to currently trade at USD 83.41/barrel. US President said that the US has other tools in dealing with high oil prices as traders weighed the odds that the US Strategic Petroleum Reserve may release crude to increase supply. China’s oil imports for October fell to its lowest in 3 years as state-owned refiners withheld purchases that could balance any sharp rise in crude oil prices in the near future.

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  • Suchit Halbe @Suchit Halbe
    Param, i did not understand what you want to say. Its confusing
    Like 1

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