Rise In Oil Prices Led To Minor Rebound In USD/INR Which May Prove To Be Temporary

  • Forex Analysis
  • Editors Pick

The rise in the US dollar against majors and the decline in Asian currencies influenced the USD/INR to open the week a tad firmer at 73.20 against the previous day’s close at 73.0675.  The huge dollar inflows coming into the market as witnessed by the accretion in forex reserves could contain any rise in the currency pair beyond the 73.30 level in the near term.

The rupee’s undertone is undoubtedly bullish and weakness in the domestic currency seen in the intermediate period provides the potential opportunity for the exporters to sell their medium-term receivables. The importers seem to be complacent to keep their payables unhedged to save on the hedging cost and to benefit from the currency’s appreciation over the period. The hedging strategies being adopted by the importers is proving to be beneficial in the current circumstances.

India’s forex reserves rose to USD 605 billion in the week ended 4-6-21 registering a sharp increase of USD 6.2 billion in the one week period. Since end-March 2020, the forex reserves had risen by close to USD 130 billion. The build-up in reserves is among the strongest across emerging economies. During the period end-March 2020 to 4-6-21 the accretion in reserves stood at 4% of GDP. RBI mopped up surplus dollar supplies from the market on a regular basis in their effort to prevent any sharp appreciation in the rupee exchange rate and keep the exchange rate competitive to boost export growth. Reserves are adequate to meet 15 months of imports. The ratio of external debt to forex reserves is 1:1.11 which reflects a comfortable position. In terms of forex reserves, India is well placed to meet any external vulnerability arising out of tapering by Fed and ECB at a later date which could lead to strong portfolio outflows from India. Gold reserves constituted 6.2% of total forex reserves and the evaluation of gold reserves at the higher current market rates reveal substantial gains which get added to the reserves position.

US consumer sentiment rose in early June on an improved outlook for the economy and moderating inflation expectations. Consumers are more upbeat as travel restrictions lift and health concerns ebb. The improving consumer sentiment lifted the dollar to trade higher against the major currencies. Euro touched a low of 1.2092 on Friday. As a result of the dollar’s improving sentiment, the rupee was quoted at 73.25 in the NDF market over the weekend. There is a good possibility for the rupee to register a low of 73.30 before the end of this week. The dollar index is currently at 90.50.

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