Recovery In Global Stocks Clasp The USD/INR well Below 72.50 Support

USD/INR opened the day lower at 72.3550 registering a fall of 9 paise/USD over its previous day’s close. With the US dollar index sliding lower after comments from Fed Chair yesterday, the market is betting for a test of 72.20 level in the currency pair much sooner.

Due to huge portfolio inflows and FDI/PE/External Commercial Borrowings by corporates, the RBI undertook the dollar buying operations from the market which enabled the rupee to trade close to 73.00 resistance level till the end of January 2021. During this month the 73.00 level was breached and a high of 72.28 was seen on 22-2-21. In the period from the beginning of November till February 2021, the rupee had appreciated by 2.20% against the dollar. It should be mentioned that if the RBI adopted a passive approach in purchasing the spot dollars from the market, the rupee would have touched the 70.00 mark, impacting the export growth which is already sagging and leading to huge overvaluation in the REER.

Amid concerns of the steepening yield curve, the global stock indices are trading marginally lower. The ECB President has pledged to keep financing conditions favourable until the crisis gets over. European yields fell after her comments.

The Fed Chair signalled the Central Bank was nowhere close to unwinding its easy policy. Powell made it very clear on Tuesday that there will be no interest rate hike or tapering in the foreseeable future. The Fed is committed to using its full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust as possible. DXY fell to 90.13 as of now and it fell to a low of 89.925 on Tuesday. The pound benefitted the most from the slide in the dollar. The pound touched a high of 1.4242 level in the early Asian session, the first time since early-April 2018.

Risk-sensitive currencies continued to trade higher due to dollar weakness and demand for commodities as investors are expecting a faster recovery.

Most of the Asian currencies marginally gained today on the back of the dollar’s weakness.

Asian stocks fell today as most of the investors booking profits to lock the recent gains. Among the Asian stock indices, Hang Seng fell by 2.42%, Shanghai Composite dipped by 1.74% and Taiwan Weighted Index registered a fall of 1.06% at this point of time.

The shifting of spot dollar purchase to the extent of USD 5 billion to the forward purchase book of RBI has resulted in a significant rise in forwards across the maturities. In order to contain the surge in the forward dollar premia levels, which is not in alignment with the interest rate differential between the USD and INR,  the forward purchase book of RBI is required to be capped at the prevailing level of about USD 30 billion.