Tracking the rise in global stocks, the local stocks surged higher and the USD/INR opened the day at 72.94 as compared with the previous day’s close at 73.05. The steady dollar index and sharp fall in US yields pushed down the currency pair to trade lower and a test of 72.70 is likely on the cards before the end of next week.
Following the gains in US and Asian stocks, the BSE Sensex and Nifty 50 opened the day registering significant gains. Within half an hour of trading today, the BSE Sensex surpassed the all-time high of 52,516.76 and well set to record new highs in the coming week.
As the dollar is trading below the 90.00 level, all the Asian currencies are trading higher today. The Asian stocks gained after US stocks rallied overnight after encouraging data. MSCI’s broadest index of Asia-Pacific shares outside Japan picked up 0.20%. KOSPI and Hang Seng registered a rise of 0.68% and 0.63% respectively at this point of time.
During this month to date, the portfolio equity inflows have exceeded more than USD 2 billion against the combined equity outflows of close to USD 2 billion in April and May 2021. The capital inflows arising out of divestment and IPO-related inflows would lead to a test of 72.30 resistance level of the rupee and only the RBI intervention could balance the position in the market and stabilize the rupee. With the lower forward dollar premia levels upto 3-month maturities, importers can take advantage of hedging their payables at a favourable forward exchange rate. The current spot and forward rates favour the importers and open up the possibility of keeping the payables unhedged to save on the hedging cost and to derive the benefit of rupee appreciation in the interim period.
According to the statement from Finance Ministry, vaccination and front-loading of fiscal measures could be key to reviving investment and consumption in the economy. The Department of Economic Affairs in their latest monthly report said the growth in CAPEX generated positive spillovers for consumption including the contact-sensitive sectors would facilitate recovery post the second wave.
The ECB’s monetary policy announcement avoided any talk of taper but upgraded its inflation and growth projections in 2021 and 2022. The euro is trading steady against the dollar but slipped against all the major currencies on the back of the ECB meeting.
Despite the rise in US consumer prices, the 10-year yield slipped back toward its recent lows amid signs that traders are continuing to unwind short positions. The sheer flood of cash coming into short-end markets is also a factor potentially supporting demand for Treasuries which even at these levels offer more yield than many alternatives. The 10-year T-bond yield declined below 1.44%, the lowest in more than 3 months.