RBI Intervention And Sharply Lower Oil Prices Halted The Rapid Rise In USD/INR

  • Forex Analysis
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USD/INR touched a high of 74.9525 on Tuesday due to a sharp fall in global stocks and a steep decline in US yields. The currency pair was threatening to breach the 75.00 resistance at which time RBI has intervened to sell dollars for a sizeable amount which led to a weaker dollar to close at 74.61 on Tuesday. Today the local forex market is closed for a holiday.

To maintain a competitive exchange rate to boost export growth, RBI may be willing to maintain a weaker rupee just above the 74.30 level as the demand is picking up in the overseas markets in the background of robust export growth seen in the last 2 months timeframe. Amongst the Asian currencies, the rupee has performed well in 2021 till date and the home currency registered a depreciation of 2.25% in the above period.

OPEC and its allies reached a deal on Sunday to phase out 5.8 million barrels per day of oil production cuts by September 2022. The coordinated increase in oil output by OPEC plus will start in August 2021. As the global economy recovers from the pandemic, Brent surged more than 40% so far in 2021. Crude oil prices fell sharply on Monday and Tuesday after OPEC reached a deal to boost output leading to the concern of a surplus as rising covid-19 infections threatened oil demand. The near-term outlook of covid-19 in several South Asian countries led to a strict lockdown which has cast a shadow on economic growth. From the high of USD 77.40/barrel on 6-7-21 to the current level of USD 68.88/barrel, brent has fallen by about 11% between the period 6-7-21 till date.

From the beginning of July 2021 till 20-7-21, all the Asian stock indices sharply fell with the exception of the Jakarta exchange which registered a rise of 0.53%. In the referred period, Hang Seng fell by 5.5% followed by a sharp fall of 4.84% in Nikkei 225 and 4.56% in the Philippine stock index.  KOSPI and Shanghai Composite registered a fall of 1.94% and 1.52% respectively. BSE Sensex fell marginally by 0.60% in the above period. The marginal fall in the BSE Sensex represents the continuing interest of foreign investors in the local stock markets.

US 10-year bond yield is currently trading at 1.21% from a low of 1.1280% registered on Tuesday, the lowest level since February 2021. The 2-year yield is at 0.20% and the spread between 2-year and 10-year has contracted to less than 100 bps which reflects the flattening of the yield curve downplaying the higher inflation expectation in US.

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  • deepakcoach sharma @deepakcoach sharma
    Mr Param, how you quoted that due to FIIS interest indices , Indian Market was resilient as compared to other emerging markets but the fact of the matter is FIIS has been selling has been unabated . The fact of the matter is that Indian investors including Mutual fund are balancing the act while purchasing, pl give correct facts and not speculation as readers are well aware of the prevailing scenario . Advise - kindly make deep study before giving write up - this was the important point you mis quoted
    Like 1
    • param sarma @param sarma
      I have compared the fall in asian stocks versus marginal fall in the Sensex during the period referred. I still maintain that selling by foreign investors was marginal. your reaction seems to be on the wrong note.
      Like 3
    • param sarma @param sarma
      there is no misquoting but only a comparative review based on the data furnished which is correct. thanks for your observation however.
      Like 0
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