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Risk-aversion and higher UST yields to weigh on Asian currencies 

 - HDFC Securities 

Indian rupee expected to open with dip cut in line with other Asian currencies following overnight strength in greenback and risk aversion after sharp surge in US Treasury bond yields. The ultra-dovish FOMC meeting left the 10- and 30-year Treasury yields at fresh Covid-era highs of 1.75% and 2.5%, respectively.

Indian rupee consolidated for third day in row even after stronger dollar and weaker equities. Rupee is the only currency in Asia to strengthen amid this month’s rout in risk assets, thanks to a spree of share-sale offers that are luring foreign investors. Market participants should closely watch the movement of bond yields and crude oil prices as next month might not have this many public offering inflows.

Spot USDINR closed at 72.53 with loss of 2 paise on Thursday. The one month forward USDINR suggesting 20 paise higher opening at local bourses. Technically, we see short covering bounce in today’s session with higher side resistance at 72.86 and support at 72.48.

Indian bonds pared losses after the central bank’s Operation Twist. 10-year yields rise 1bps to close at 6.20% after earlier surging to 6.24%. RBI said it will conduct another Twist operation for 100b rupees on March 25.

Asian stocks looked set to drop after U.S. shares fell from a record, with equity futures pointing lower in India, Japan, Hong Kong and Australia. The dollar climbed against all its Group-of-10 peers as an overnight surge in Treasury yields prompted investors to boost long positions in the greenback. Elsewhere, WTI crude was smoked by 8% to $59 a barrel for its worst one-day showing since last spring’s foray into negative territory

Officials from the U.S. and China begin their first meeting since Biden became president. Beijing is seeking a meeting between Presidents Joe Biden and Xi Jinping if this week's highlevel talks are productive, but the U.S. has sought to set low expectations for a breakthrough.

Technical Observations:

USDINR March futures resisting at 20 EMA on hourly chart. The formation of lower top lower bottom on all time scale suggesting continuation of down trend.

The pair is having resistance at 72.78 and 72.86, the 20 and 55 EMA on hourly chart.

Momentum oscillators and indicators on hourly chart given positive cross-over but suggesting short covering bounce.

We expect short covering bounce in coming days and pair could touch level of 73 odd levels while holding the support of 72.45 for the time being.

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