USDINR: Exporter to Remain Hedged Until Pair Remains Below 73

  • Forex Analysis
  • Editors Pick

Across the globe, the stock indices are charged on 'risk-on' tone as countries and regions are rolling out vaccines and easing lockdown restrictions. The pace at which governments are offering vaccination has made traders expect a brighter outlook of economic recovery and normalisation of business activity across nations. The stock market is factoring in the supportive financial conditions in 2021 and likely through 2022 on the back of the US fiscal stimulus package. US fiscal stimulus continues to be a key focus for investors, with President Joe Biden aiming to pass his US$1.9 trillion Covid-relief packages using budget reconciliation. The package is getting delayed due to a lack of Republican support in the Senate, but there is a growing likelihood of a large fiscal stimulus. This optimism has pushed USDINR spot to 72.57, the lowest level since Mar 3, 2020.

The trading range in USDINR spot has shifted to 72.00-73.00 and RBI seem to be comfortable with rupee appreciating below 73 levels. This week is a holiday-thinned market so forex trading may be uninspiring but RBI intervention will be eyed. Also, the focus will remain on global flash PMIs and Fed minutes. The FOMC will release the minutes to the January meeting, in the recent speech at the Economic Club of New York, Powell was dovish and repeated that the Fed would not consider raising interest rates even if inflation exceeds 2% on a temporary basis. After hearing Powell, the focus is on minutes so that it might only provide limited insights into whether policymakers are encouraged and what it means for monetary policy.

Technically, as seen in the following chart, USDINR spot opened the week at 72.61 compared to the previous close of 72.75. The crucial strong support is located at 72.55/72.50 and consistent trading below 72.50 only we can see a dip towards 72.30/72.25. However, if it respected 72.55/72.50 then only a reversal is foreseen to find crucial resistance at 72.80-73.0 and then 73.25. 

So until the USDINR spot is trading below the psychological level of 73, we recommend that exporters must hedge their short term receivables on a systematic basis for higher export realisations. Not hedging the export receivables will prove ineffective from the hedging perspective.


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