Further rally expected in the US Dollar: Emkay Wealth Management Ltd
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Dollar index may touch 109 level in the short-termRupee movement dependent on the return of fund flows by FIIs
A host of financial and geopolitical developments that affected currency performance worldwide. The US Dollar strengthened to its highest level against the Euro in the month of July. Likewise, the dollar strength led to the rupee depreciating to its weakest level of 80/$. The rising trade deficit also played its part in the INR fall vs the USD.
After rising to its high, the USD has cooled off a bit. The softness in the greenback is largely due to the fall in the prices of Brent crude oil to its lowest levels since February. Crude prices have weakened also due to the lockdown and lower demand from China and the expectation of Iranian oil returning back to the global market.
The UK political scenario is currently passing through some major changes. There is quite a bit of uncertainty around the situation after the resignation of the Prime Minister, and the process of electing the new Tory leader is underway. Once the election is over, and the policy pronouncements or till at least a sense of that emerges, the Pound Sterling may not be able to regain ground. But the Euro is struggling to stabilize due to the European gas crisis as the supply of gas is only to the tune of 20% of capacity from Russia’s Nord Stream1.
These factors generally present a case for the US Dollar in the immediate term. The US Dollar Index is trading in the range of 105-108, and its projected target is 109.30, though one may see some intermittent periods of the index falling and then rising, it is generally expected that the US Dollar Index is north-bound.
The emerging market currencies have also been depreciating against the US Dollar since the beginning of the year with a level of depreciation in the range of 5-9% since the beginning of the year, including the Indian Rupee, Thai Baht, Chinese Yuan, and South Korean Won. The currencies of the East European Region, Turkey, Argentina, and Egypt have seen still higher depreciation, in the range of 15- 25%.
While India faces a widening trade deficit that works against the local currency, any revival in the fortunes of the Rupee is dependent on the return of overseas investors into the domestic equity market
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