Rupee to weaken even further due to the rising price of oil

On Monday, the rupee fell 22 paise versus the dollar, marking the fifth straight session in which it has lost 68 paise. Investors flocked to safe-haven assets as global worries drove them, and a disappointing performance in domestic equities, as well as higher crude oil prices, impacted emotions. The rupee opened at 75.53 against the greenback on the interbank foreign exchange, before hitting an intra-day high of 75.37 and a low of 75.64 before closing at 75.58, down 22 paise from the previous day. Because of increased oil prices, the rupee is anticipated to weaken much further.

Furthermore, gloomy global market sentiments and a stronger dollar may continue to exert downward pressure on the rupee. Investors will now be watching a succession of macroeconomic statistics from the United States.

According to ICIC Direct, the US$INR (Feb) is likely to go up further towards 76.0 levels.

Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services

“Rupee remained under pressure against the US dollar on uncertainty that Russia is preparing to invade Ukraine. According to the United States, Russia could make such a move at any time and might even create a surprise pretext for an attack that reaffirmed a pledge to defend “every inch” of NATO territory. On the domestic front, market participants remained cautious ahead of the inflation number that was released yesterday. Data showed that CPI rose 6.01% in January as compared to 5.56% in the previous month. The uptick in the food basket was due to a sharp rise in the prices of oils and fats, which climbed 18.70% on year in January.”

“On the other hand, the dollar rose to a two-week high on growing worries about Russia-Ukraine tensions and as St. Louis Federal Reserve President James Bullard reiterated calls for faster U.S. Federal Reserve interest rate hikes. Bullard also said four strong inflation reports in a row warranted action and that the central bank needed to “ratify” market expectations of its upcoming moves. Today, focus will be on the PPI number, and an uptick in the number could extend gains for the dollar. We expect the dollar to trade with a positive bias and quote in the range of 75.20 and 75.80.”

Heena Naik- Research Analyst – Currency, Angel One Ltd

On February 14, 2022, USDINR made a gap up opening at 75.53 levels, up from its previous closing of 75.38 levels. Following that, it reached higher levels of 75.64 before closing the trading session at 75.60.This bullish trend is likely to continue in tomorrow’s trading session as well. If this level is breached, the currency could fall to 76.00.Apparently, the geopolitical crisis between Russia and Ukraine has taken the entire global market under its scanner. Moreover, higher crude prices are another headache that Indian markets are facing. Outflows are likely to continue for some more time, giving less fodder for the rupee to revive again. As of now, the trend of the rupee is weak.”

Amit Pabari, MD, CR Forex Advisors

“After a roller coaster ride in yesterday’s session, the USDINR pair is expected to open near 75.55 today and it is likely to trade in the range of 75.35 to 75.85 with an upside bias. The US dollar index was seen testing a 15-day high above the 96.40 mark after both risk-on (Fed’s hawkish tilt) and risk-off sentiment (Russia-Ukraine tension) lifted the momentum higher. The verdict on the special meeting is yet to come, but the market is expecting an immediate end to bond buying. In the odd case, if they go for an emergency rate hike, it would be the first inter-meeting rate hike since 1994.”

“On another side, Russia-Ukraine tensions were seen easing yesterday after the Ukrainian ambassador commented that Ukraine may give up its bid to join NATO to avoid war. However, the US has again urged its citizens to leave Ukraine. Overall, the sentiment is setting a weaker momentum for the EM FX and so for the Rupee. Domestically, equity markets were seen tumbling by more than 3% amid rising tensions. This led to an FII’s heavy withdrawal of more than Rs. 4200 crore, taking the total to more than Rs. 15,000 for the month. On the economic data front, India’s CPI came around 6.01%- the highest in seven months and moving just outside of the RBI’s comfort range. It would be watchful how RBI utilizes their forwards and heavy FX reserve kitty in case of a sudden depreciation. But overall, depreciation toward 76.30 is imminent over the short term. On the contrary side, 75.20 -75.00 will act as a key reversal level.”

Kotak Securities: There is an upward drift in USDINR

“Crude oil prices continue to march higher and FPI continues to exit their holdings in Indian stocks and bonds. FPI has sold nearly $5.8 billion so far this year, and nearly $12 billion since September 30th, last year.However, this relentless selling has been matched by FDI inflows and ECB inflows. Carry traders have not shown any signs of panic even though oil prices are nearing the $100 mark, a 7 year high. Strong commercial flows and favourable real yields are what keep them in the rupee. As a result, though there is an upward drift in USDINR, the pace is excruciatingly slow. The question is, if tensions ease and oil prices reverse, then USDINR can reverse at a faster speed. As of now, bias remains upward as long as prices sustain above 75.20 on spot. Focus on bullish strategies with a closing stop below 75.20 as a spot reference.”