The fall in global stocks and a lower US dollar index enabled the USD/INR to open the day at 74.68 near to its previous day’s close. The receding portfolio equity inflows and fall in domestic stocks could influence the currency pair to test the 74.30 support in the coming week.
Fitch Ratings has cut India’s real GDP forecast by 2.80% to 10% as renewed COVID-19 restrictions have slowed recovery efforts. The open market purchase of bonds worth Rs.20,000 crores under G-SAP 2.0 could keep the rupee under pressure. The upcoming foreign fund inflows on account of IPOs and possible RBI intervention will keep the rupee well supported at 75.30 in the near term.
The domestic currency’s trend in the next 3 months period from now will be mostly guided by the adverse and favorable factors currently prevailing in the market. The adverse factors include the rise in global oil prices, higher inflation in the domestic economy, ballooning fiscal deficit besides portfolio equity outflows of sizeable amounts arising out of any news on the timing of Fed tapering. The favorable factors constitute rising forex reserves position, continuing portfolio, and other capital inflows into the country, the robust export growth being witnessed now and the intervention stance from RBI to prevent any sharp appreciation in the exchange rate. The narrative of the above-mentioned factors provides the guidance for the rupee to depreciate on a gradual basis to test the supports at 75.00 and 75.30 before the end of September 2021.
There is no surprise from the FOMC minutes released on Wednesday than what has been announced by the Fed on 16-6-21 after their policy meeting. The minutes of the FOMC meeting reaffirmed that the Federal Reserve is edging closer to tapering asset purchases. Some of the Fed officials mentioned that they expected the conditions for tapering to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings. The release of Fed minutes supports renewed greenback demand.
The US dollar is trading moderately higher and all the Asian currencies are extending downfall. Followed by a fall in US and European stocks, the Asian stocks are trading lower at this point of time led by a steep fall of 1.32% in Taiwanese Weighted Index, Nikkei 225 dipped by 0.75% and KOSPI fell by 1.30%. The benchmark BSE Sensex after registering a fall of 0.92% on Thursday is currently trading at 0.30% negative. As a result of weakness in the Asian stocks, all the Asian currencies are trading lower.
Oil prices after falling for three consecutive trading sessions recovered today to currently trade at USD 74.36/barrel, a fall of 5% from the previous high of USD 77.84/barrel registered on 6-7-21. After talks between OPEC plus fell apart, when Saudi Arabia refused demands from the UAE to raise its output under the Group’s supply cut agreement. Russia is trying to mediate between Saudi Arabia and the UAE to help strike a deal to raise oil output.