FX Market Update: Rupee Shows Signs of Weakness

After posting a negative tone over the previous two days, USD/INR started yesterday’s session on a positive note but failed to maintain its initial lead. Keep reading to learn more.

Yesterday, the USD/INR pair started the day on a positive note, thanks to stronger Asian currencies and a resurgence in risk sentiment, but failed to sustain the peak due to various factors. Concerns about global inflation increased following the Russian-Ukrainian war. As a result, USD/INR fell from its high of 75.74. The situation between Russia and Ukraine is estimated to push up crude oil prices, raising concerns among central banks around the world. Additionally, rising crude oil prices will put pressure on India’s USD outflows, further depressing the INR against the USD.

The devaluation of the INR against the USD coincides with an increase in the rate of inflation in India. In addition, soaring inflation is expected to continue until the Russian-Ukrainian conflict, which has already contributed to soaring crude oil prices, is resolved. Crude oil prices are expected to approach a seven-year high of $100 a barrel in the near future, with lingering global concerns pushing it higher to $105 a barrel.

Foreign portfolio investors (REITs) continue to sell their holdings of Indian stocks and bonds. REITs have sold around USD 5.8 billion in 2022, and more than USD 12 billion since the end of September 2021. Nevertheless, this sustained sale has been offset by inflows of foreign direct investment (FDI) and external commercial borrowing ( ECB). Despite soaring oil prices, there are few signs of fear among carry traders. This could be due to robust trade entries and favorable real yields, which encourage them to stay in the rupee.

That said, for the next week the 75.09, 75.43 and 75.74 levels will work as critical resistance for the USD/INR pair, while 74.76 and 74.43 will act as key support levels. . Additionally, rising crude prices, inflation, and geopolitical concerns would all influence the path of the pair.

About Ruben V. Albin

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