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USD/INR

Exporters: Hedge 2-m @ 82.35/50

Importers: Hedge 1-m @ 81.70

25.10.22 OPEN 82.68 HIGH 82.79 LOW 82.59 CLOSE 82.7250

In a holiday-thinned market on Tuesday, rupee moved in a relatively narrower range, but the market behavior stuck to the usual pattern of buying into the dip offered with opening gap. Good covering by importers and oil companies was seen pushing the Rupee lower during the day, notwithstanding weakness seen in Dollar Index reflected in major currencies like EURO, GBP and Yen.

At the same time, Chinese Yuan showed no signs of stability and hit a new all-time highs in the offshore market touching 7.3740 The substantially reduced forward premiums has been encouraging more import cover while exporters found it less attractive to hedge, particularly when the Rupee’s depreciating trend has shown no signs of abating.

The last two days has seen substantial weakness in the Dollar against major and EM currencies with views emerging among some players that FED may even be pausing after a rate hike in November. In fact, the economic data this week has mostly be on the weaker side giving a sense that the big rate hikes that the FED has gone for, may at last be slowing the economy. The overbought state of the Dollar has also weighed on the rate resulting in a steep correction in DXY. Both Bank of Japan and Chinese Central Bank have used this sentiment in the market to intervene and seen some strength in the respective currencies. The broad movement in the Dollar has influenced Rupee to the stronger side, trading just below 82.00 in offshore

OUTLOOK

The factors behind Rupee’s weakness have been mix of both global and domestic factors and strength of Dollar has been one of them. While this may help Rupee to stabilize, the continued higher external deficits and lack of flows are still at play to keep it from strengthening too far. More sustainable gains can be seen if we do actually see the FED indicating a pause in rate hikes and possibly slow down their asset unwinding. Easing of geopolitical tensions and oil prices remaining stable are also important factors

Looking at the valuation of Indian equities which are already at the highs, we may not see much flow from the FIIs, although indications of interest rates nearing the top may invite flows into the Indian bonds where foreigners are very lightly positioned. Besides, there is a lot of long term investment interest in India (FDIs) and the related flows may start if there is easing of tightness in global financial conditions.

Technically, 81.50 levels offers good support to the USDINR and break of that requires the Dollar Index to get into a bear trend. Current moves in the major currencies are seen by us as correction and hence rupee should be moving in the 81.50-83.00 band for now.

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