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Below are Views On USDINR to fall below 73.00 levels on improved local sentiments and inflows by Heena Naik, Research Analyst - Currency, Angel Broking Ltd

The month of August’21 was quite an interesting month for the Indian Rupee. The currency traded mostly on a weaker mode and touched the lower levels of 74.48 in August’21 as investors hopped towards safe haven assets on back of disappointing economic data releases from China, the spreading of Delta variant across the globe and political tension in Afghanistan. In addition, Federal Reserve meeting minutes showed that the committee was considering to reduce pandemic-era stimulus this year which later hit global stocks and commodity-linked currencies.

All of the above mentioned reasons played with the trend of the local unit; keeping it mostly on the bearish side. However, markets had some different plot twist to face as the Indian Rupee changed its mode from becoming weak to strong, in the last few days of August’21. In fact, on the last trading day of August’21; the currency broke the major psychological level of 73.00; creating shock waves amongst traders and investors. This strength got carried forward in the early days of September’21 too.

Reason for the strong trend was the month-end dollar selling by corporatescoupled with MSCI rebalancing related inflows into the system. Another major reason for USDINR fall was the price movement of US Dollar Index that declined after the US Fed Chair Jerome Powell signalled a cautious stance to withdrawing further stimulus. Intervention by the RBI was also seen missing as the central bank stated that its currency interventions were aimed at soothing volatility. However, there were market rumors of RBI mopping up large amounts of dollars to keep the rupee from getting swayed by a spate of share sales and debt issuance by companies.

At present, the Indian Rupee (CMP: 73.51) is seen trading between the range of 73.20 – 73.90 levels.The 73.50 level is seen as a major support levels for the Rupee over the last week, leading to speculation that it is the new base for the pair. If USDINR happens to break and stay below 73.50 levels; we may see the currency tumbling towards 73.20 and lower levels. 73.00 is again an important level which may see a lot of opportunistic dollar demand by importers and banks. If USDINR manages to sustain all of these obstructions; we may even witness a fall towards 72.80 levels.

The reasons for Rupee’s upcoming strength include improved local sentiments that shall keep both Sensex and Niftyin green on plausible foreign inflows as some businesses got a shot in the arm with India Union cabinet clearing PLI for the auto sector and announced debt relief package for the telecom sector, also approving 100% FDI for the sector. Apart from this, the US Dollar Index is seen struggling a bit in recent days on expectations that the disappointing release of the U.S. consumer inflation data shall prompt the US Feds in the next week (FOMC Policy Meeting - Sep 21st and 22nd) to maintain status quo, saying that it will maintain the current pace of bond purchases till there is further progress on inflation and employment. Therefore, it can be said that the Indian currency shall receive help from the drop in the dollar index and the moderately higher Asian peers. Apart from this, there are market rumours of some FTSE rebalancing flows in the coming days that shall bring in some money into the system and provide further support to the Indian Rupee.

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