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Rupee outlook: Crude oil, risk sentiment, foreign funds flow to drive currency; USD-INR support at 77.70


By Dilip Parmar

Last week ended with the shock revelation that inflation has not peaked. The months after the Lehman bankruptcy, the aftermath of 9/11 and the dot-com crash, Black Monday, the pandemic panic of March 2020, and the Oil Shock- there haven’t been many events since the end of WWII as disastrous for stocks as the past two weeks.

Worldwide, 33 rate-setting central banks have raised borrowing costs in the past month. The Federal Reserve is now the most aggressive in the G-10 year-to-date, a fact that justifies the dollar’s strength and will help sustain it. Speculative traders are ramping up their bullish bets on the greenback. Net long non-commercial positions in futures linked to the ICE U.S. Dollar Index surged to the highest in five years, according to the latest CFTC data.

Given the size of the euro flow in particular, however, the aggregate dollar rose by a little over $2 billion on the week. The Fed’s most aggressive rate hike in two decades has emboldened dollar bulls with the central bank vowing last week that its fight to restore price stability is “unconditional.” Bulls also have the natural hedge of the dollar smile to give them comfort behind their wagers, its history as a haven should fears of a policy error push risk assets into another sell-off.

However, the Indian rupee remained resilient and range-bound among volatile Asian currencies which registered big swings and volatility after the hawkish Federal Reserve. Spot USDINR consolidated in the narrow range of 77.80 to 78.30 before settling at 78.07 with a gain of 0.30% or 24 paise.

This week may be another calm for the local forex markets with old factors like crude oil prices, risk sentiments and foreign funds flows to drive. Technically, USDINR is having resistance at 78.40 and support at 77.70.

(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own.)

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