Despite weaker Greenback, Re rebound in narrow range

Hyderabad: The routine demand from oil and other importers for the Greenback coupled with US dollar fluctuations keeping Indian rupee volatile. Further, importers seems to be not bothered to hedge their near-term payables when USD/INR drops below 82/USD. The home currency weakened from 81.84 on April 8 and to 82.01 on April 12 as against 76.15 on last April 12, 2022. with the 1-year implied yield hovering at 2.37 per cent, USD/INR premiums were declining. After the Reserve Bank of India's unexpected pause last Thursday, the 1-year implied yield fell by 20 bps.

This week, the Indian Rupee hit a high of 82 against the US Dollar, its highest level in over three weeks, observes Tapish Pandey, senior research analyst at SMC global securities Ltd.

The battle between the Indian rupee and the US dollar has been fierce lately, with both sides struggling to gain an upper hand. The rupee has been stuck in a narrow range, hovering near 82.00 against US dollar, while the Greenback has been weakened by softening inflation and concerns over a bank liquidity crisis, he said.

Despite the high crude prices and mixed sentiment, there's hope that the Federal Reserve is nearing the end of its hiking cycle, which could provide a floor for further weakness in the rupee. The euro and pound are also benefiting from a weaker dollar, as the dollar index trades below 102.00 consistently.

Pandey forecasts: “The USD-INR pair has been consolidating within the range of 81.80 to 82.50 levels for the past few weeks, indicating a likelihood of remaining range-bound. But with the immediate support of a horizontal trend line near 81.80 levels, the pair could turn negative and form a sideways trend if it manages to break below this level. On the flip side, resistance is seen around 82.30, followed by 82.56 levels.”

“The rise in the Rupee can be attributed to the broad weakness in the US Dollar index, which fell to a one-year low after US economic data highlighted the need for the Federal Reserve to consider a pause in its rate hikes. However, the Rupee fell to as low as 82.44 per dollar following the surprise voluntary oil production cut of more than one million barrels per day by Saudi Arabia and other OPEC+ members. This cut caused oil prices to jump nearly eight per cent higher, and Saudi Arabia announced that it would reduce production cuts by 0.5 million barrels per day, equivalent to five per cent of its production,” Pandey told Bizz Buzz.

Traders were keen on release of inflation data in India and the US. Retail inflation in India fell to a 15-month low of 5.66 per cent in March, mainly due to a decline in food prices. Global markets consider the US print more crucial from the rupee’s point of view. It’ll be instrumental in the Federal Reserve’s decision on whether to raise rates at its May meeting.

“The move by Opec is creating fears about weakening oil demand and was aimed at boosting oil prices. Despite the fear of weakening oil demand, the expectation of a Fed pause in its rate hike cycle has led to a rebound in the Rupee and other currencies against the US Dollar. However, supply-side inflation worries may lift expectations of global rate hikes, which could lead to another shift in the markets. In the coming days, we anticipate that the trend in the US Dollar will continue to stay lower. We predict that USDINR may edge below 81.70, while EURINR and GBPINR have the scope to rally further,” adds Pandey.

The forex traders are keeping their fingers crossed over the possibility of rate hike by the US Fed in May after the US jobs report and easing worries over the US banking sector.

With inflation data from the UK and ECB monetary meeting minutes next week, traders should keep an eye on the support and resistance levels to make informed trading decisions. But for now, it seems like the USD-INR pair is likely to remain range-bound, with no clear winner in sight, further adds Pandey.

Generally, importers prefer to buy dollars when the dollar index is weaker and it indicates there is an outflow. However, dealers don’t have clarity over nature of the outflow as they attribute it to importer demand.