Decline In Asian Currencies Supported The Near Term Uptrend In USD/INR

  • Forex Analysis
  • Editors Pick

Influenced by the sharp rise in brent crude oil futures which surged to the high of 73.83 on Monday, the USD/INR opened the day a tad firmer at 73.2050 after touching a high of 73.29 on Monday. The currency pair is expected to trade with a firmer bias as the crude oil prices are expected to edge higher in the coming weeks due to a rise in global demand.

The rising oil prices dampened the sentiment for the domestic currency. As the economy is rebounding after the second wave of coronavirus, the dollar demand from oil refiners may weigh on the rupee in the near term.

Influenced by huge foreign fund inflows coming into the market, the BSE Sensex registered a lifetime high of 52,869.51 so far in the day and looking to gain further to register new record highs during the course of this month. Besides the portfolio equity inflows, the domestic retail investors and DFIs poured funds into the market which lifted the domestic stocks to record all-time high on each trading day. The Nifty 50 also recorded an all-time high of 15,901.60 at this point of time today.

Despite a jump in US consumer prices, the benchmark 10-year T-bond yield tumbled 11 bps in the last week and it touched a 3-month low of 1.43% on Friday. There is a large short base in the market and data shows bond positions declined which is consistent with investors doing some unwinding. The short-term US interest rates have declined with 3, 6 and 12-month USD Libor being quoted at 11 bps, 14 bps and 23 bps respectively. The spread differential between the 2-year and 10-year bond yield has now contracted to 135 bps from 160 bps which had prevailed in March 2021.

From the end of December 2020 till 14-6-21, all the Asian stocks had risen significantly with the exception of the Philippine Index and KLCI which fell by 3.50% and 2.63% respectively. Taiwanese Weighted Index and KOSPI registered a sharp rise of 16.84% and 13.08% respectively, while the BSE Sensex recorded a rise of 12.16%. Unrelated to the stock performance, all the Asian currencies had depreciated, excluding the Taiwanese dollar and Chinese Yuan which had appreciated by 3.08% and 2.04% respectively against the dollar. The rupee was flat in the above referred period.

Ahead of a Fed policy meeting on 15th and 16th June, the dollar held its gains against major currencies from Friday last week. After the dollar regained momentum, most of the major world currencies fell. US Treasury yields edged higher on Monday as investors prepared for a key Federal Reserve meeting this week. After hitting three-month lows at 1.43%, the 10-year US yield inched upto around 1.49% as of now.

Suddenly the domestic currency sentiment turned moderately negative on fears of fiscal slippage and aggressive intervention from RBI to mop-up the dollar supplies from the market, as reflected in huge accretion to the forex reserves. In the current circumstances, it is advisable for the importers to hedge their payables upto July maturities on seeing any recovery in the spot rupee toward 73.00 level.

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