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Rupee depreciates for second days as dollar recovers

Indian rupee expected to start slightly higher after witnessing long unwinding in last two days following strength in dollar and crude oil prices. Crude oil rose to its highest in more than two years, with the OPEC+ alliance forecasting a tightening global crude market.

On Tuesday, Rupee declined by the most in more than a month amid possible foreign banks’ dollar buying and surging crude oil prices. Spot USDINR rose 0.4% to 72.90 after climbing 0.5% earlier, the most since April 22 marking gains for second successive session. Technically, spot USDINR is having resistance at 73.30 and support at 72.60.

India’s manufacturing sector fell to the lowest in 10 months amid a resurgence of Covid-19 cases. The IHS Markit India Manufacturing Purchasing Managers’ Index stood at 50.8 in May 2021 compared with 55.5 in April. New orders, the largest sub-component of the headline figure, rose at the slowest pace since August 2020.

Asian stocks look set for a steady open after U.S. equities inched lower as the tussle between economic optimism and inflation concern continues to play out in markets.

USD/CNH traders are building up hedges to protect against a higher dollar after a slew of messages from the PBOC that enough yuan appreciation has been seen for now.

The dollar was steady in early Asian trading. Seasonality suggests that the dollar will be weak in June but there a few reasons for bulls to believe that this time it will be kind, not cruel. The Dollar Spot Index looks set for a rebound after completing its down cycle, the combination of 38-month and 76-month cycles has called for a cyclical low in November 2020, two months earlier than the low in January 2021. That also coincides with the red DeMark Sequential 13 signal that appeared on May 14, 2021.

USDINR

USDINR June futures closed above 13 days exponential moving average

The pair closed above downward slopping trend line resistance indicating short term reversal. However, the pair has to form higher highs and lows to confirm the trend reversal.

Momentum oscillator RSI has exited from oversold zone with positive cross over suggesting bullishness

We remain neutral in USDINR and expect June futures to trade in the range of 73.35 to 72.70 in coming days.

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