Steep Decline In USD Index And Rally In Local Stocks Led To A Downturn In USD/INR

Published 19-05-2021, 12:53 pm

Amid the absence of any dollar buying from Central Bank, USD/INR registered a low of 72.9550 on Tuesday for the first time this fiscal year. The rally in domestic stocks may encourage the market to decisively breach the 73.00 support level for the currency pair to trade at lower levels if the Central Bank continues to abstain from the market.

After weaker-than-expected US non-farm payrolls data released on Friday last week, the dollar's decline continues to benefit the rupee. However,  the growing inflationary pressures in the US and the recent rise in the global oil prices helped to counterbalance any steep rise in the rupee exchange rate.

Moody’s Investors Service raised their concerns that in the event of a prolonged and wider lockdown it will have a more severe effect on the company’s earnings recovery. Starting in early June, the market is discounting progressive lifting of widespread lockdowns. Despite the impact on growth and earnings in Q1, smart recovery can be expected in the subsequent quarters.

RBI in their bulletin remarked the second wave of coronavirus pandemic led to the loss of mobility, discretionary spending and employment. However, the Central Bank acknowledged that the loss of growth momentum now is not as severe as at this time a year ago.

From the end of March 2021 till 18-5-21, most of the Asian stocks drifted lower led by a drop of 3.08% in the Philippine Index followed by a 2.52% fall in the Jakarta exchange. KOSPI and Shanghai Composite however gained by 3.65% and 2.53% respectively. In the corresponding period, all the Asian currencies have depreciated against the dollar with the exception of Yuan and  Rupiah which posted a rise of 2.04% and 1.63% respectively. The rupee remained stable against the dollar in the referred period.

Oil edged higher after a third-weekly increase as demand recovery in the regions raised optimism about rising fuel consumption. Full recovery from the pandemic is far from many parts of the world which continues to dent the outlook. The coronavirus resurgence in India is still a crippling industry,  while new outbreaks in Singapore and Taiwan show authorities need to remain vigilant. The brent prices are currently ruling at USD 68.00/barrel after it registered a high of USD 70.14/barrel on Tuesday, the highest since March 15.

The significant rise in the prevailing forward dollar premia levels upto 6-month maturities is serving to discourage the importer-covering in the market and the market’s position is skewed towards lower dollar demand and higher dollar supplies to guide a one-way direction in the domestic currency. RBI intervention is the only tool available in the current circumstances to maintain normal conditions in the market. The Government has set an ambitious export target of USD 400 billion in FY 2021-22 and hence it is imperative to maintain a weaker rupee to boost export competitiveness. Due to the lower demand for petrol and diesel prices,  the oil import bill in the previous financial year was much lower and the stronger rupee has not effectively helped to reduce the imported inflation.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2025 - Fusion Media Limited. All Rights Reserved.