USD/INR: Rupee Gains in Early Trade, Likely to Remain Weak on Firm Dollar

The Indian rupee started on a firm note on Thursday but the strong U.S. dollar and high oil prices will put pressure on the battered Asian currency.

The USD/INR opened about 6 paise stronger at 74.215 against the U.S. currency, up from Wednesday’s close of 74.27. The rupee has lost over 170 paise so far this month and weakened about 13 paise in the last four trading weeks.

“For a couple of sessions, the rupee has been trading in a range of 25. Yesterday, it managed to gain 10 paise and ended near 74.27. The dollar index recovered from early losses and ended almost flat for the day. The current account deficit widened to a 14-year high, which should keep the dollar move in check. We feel it is likely to consolidate above 91.5 levels,” noted analysts at ICICI Direct.

“US$INR continued to trade above 74 levels supported by a strong dollar and crude oil prices. We continue to feel that due to a rise in the dollar index, the US$INR pair should move towards 74.6 levels in the coming days. The dollar-rupee June contract on the NSE was at INR 74.31 in the last session. The open interest fell 7.1% for the June series.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, was trading 0.03% higher at 91.828. The dollar is expected to rise further over the coming year, largely driven by the Fed’s dot plot released last week, which suggested an expectation of two rate hikes in 2023.

“The DXY index (dollar index) edged higher after the seemingly hawkish camp of the FOMC aired their views overnight. The greenback slid for much of late Asian session well into NY,” noted analysts at Maybank.

“Some damage control from the Fed should slow the pace of USD increase. DXY index hovered around 91.80. a tad firmer than this time yesterday. Bullish momentum on daily chart intact but shows signs of slowing while stochastics turn lower from overbought conditions. Pace of gains could moderate. Support here at 91.5 levels (200DMA, 50% fibo), 91 (38.2% fibo, 100 DMA) and 90.45 levels (23.6% fibo). Resistance at 91.95 (61.8% fibo), 92.51(76.4% fibo retracement of mar high to May low) and 93 levels.”

The Indian equity market witnessed a strong influx of retail investors, the benchmark equity indices BSE Sensex was trading 179.02 points or 0.34% higher at 52,485.10, while the broader NSE Nifty advanced 46.50 points or 0.3% to 15,733.45.

However, foreign institutional investors were net buyers in the capital market on Monday as they purchased shares worth Rs 3,156.53 crore, as per provisional data. Global oil benchmark Brent futures rose 0.09% to $75.26 per barrel.