Rupee under pressure from high crude prices; strong macro, RBI intervention can help stop the slide
The latest inflation figures may have surprised currency watchers, but pundits remain optimistic that the Indian currency will remain proficient against the US dollar. However, the rupee is expected to remain under pressure from rising crude oil prices amid a sharp decline in the US dollar and REIT outflows in June.
Experts believe that the above factors influence the trajectory of the rupee thereafter. The intervention of the central bank in parallel with the carry trade can be useful to trace a correction of course.
âWhile the rupee appreciated significantly in May, the USD / INR is currently experiencing short hedging. The 72.20 support level for USD / INR worked well and we saw RBI intervention at lower levels to support exporters, âsaid Amit Sajeja, vice president research – commodities and currencies at Motilal Oswal.
Read also : Is Dollar-Rupee Looking For A Break Above 73.30
Meanwhile, the dollar hit a one-month high against a basket of currencies as investors tried to determine whether the Federal Reserve could change the language of its stimulus measures following a recent surge in the US inflation.
âThe USDINR spot remains in the middle of the range ahead of the FOMC announcement. If the FOMC pushes back tapering discussions, it will reject the bullish trend at the spot. Otherwise, any hint on when to tapering will continue. Dollar rally, pushing the USDINR up towards the crucial 73.50 resistance, “said Rahul Gupta, head of currency research, Emkay Global Financial Services.
He expects constant trading above this level to push prices towards 73.60-73.75, however, a reversal could bring the spot back to the 72.75-73 area.
However, a sharp rise in crude oil prices continues to weigh on the local currency.
Read also : Explained: What explains the sudden increase in crude oil prices?
Oil prices extended their streak of gains on Wednesday, climbing to $ 75 a barrel at their highest level since April 2019, supported by a recovery in demand from the pandemic and a drop in crude inventories in the United States.
Meanwhile, India’s stable macroeconomic situation with record level foreign exchange reserves and hopes of slowing inflation in the future will support the rupee.
The country’s foreign exchange reserves first crossed the $ 600 billion mark after rising $ 6.842 billion in the week ended June 4, according to RBI data.
Read also : Oil holds close to multi-year highs amid rebounding demand
“Crude prices may maintain the upward trajectory going forward, but the RBI should also intervene if the rupee continues to weaken. However, the rupee would not get out of control due to the CAD’s robust foreign exchange reserves. under control, RBI support for budget deficit financing and stable bond yields, âSajeja said.
He expects the rupee to trade in a range of 72 to 75 per dollar over the next six months.