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Rupee opens lower and may slip below 83 in three months amid weak market sentiments, rising crude oil prices

The Indian rupee fell 12 paise to 81.52 against the US dollar in the early trade on Monday. The local unit is expected to appreciate amid weakness in the dollar and a rise in risk appetite in global markets. Market sentiments are expected to improve further on hopes the US Fed will reduce the pace of rate hikes in the upcoming meeting following softness in the US inflation print. “US$INR is likely to face rejection near the 20-day EMA at 81.80 and move towards the immediate support at 81.30,” said ICICIdirect. In the previous session, the rupee appreciated 8 paise to close at 81.53 (provisional) against the US dollar.

According to analysts, the rupee’s recent gains may prove to be fleeting because of pressure from India’s persistent current-account gap and the central bank building up its foreign-exchange reserves. QuantEco Research expects the rupee to slip toward 83.5 per dollar in the next three months, down over 2% from 81.6 on Friday. Nuvama Professional Clients Group sees it dropping past 83. The currency’s appreciation is being limited by the Reserve Bank of India building back up its forex reserves, which hit a two-year low in October. Any dip in the dollar-rupee rate is seen as an opportunity for the RBI to stock up, said Abhilash Koikkara, head of the forex at Nuvama.

Rupee may consolidate in the 80.80-82.20 range

“Overall, considering expectations from the events globally and domestically, the rupee is likely to consolidate between a broad range of 80.80 to 82.20 levels. That makes 80.80-81.20 a buying zone for importers and between 81.80-82.20 a selling zone for exporters for the near to medium term,” said Amit Pabari, MD, CR Forex Advisors.

Weak markets, and rising crude price put pressure on Rupee

“We expect Rupee to trade with a slight negative bias on weak domestic markets and rising crude oil prices. Month-end Dollar demand from importers and outflows from foreign investors may also put downside pressure on Rupee. However, a weak tone in the US Dollar may prevent a sharp downside in Rupee. We may take cues from core PCE core deflator, which is the Fed’s preferred gauge of inflation and is expected weaker than the previous reading. USDINR spot price is expected to trade in a range of Rs 81 to Rs 82.20,” said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.

All eyes are on Union Budget, the US Fed meeting

“Rupee traded in a narrow range and volatility was low as market participants remained cautious of important events that are scheduled this week. On the domestic front, we have the Union Budget, and also major central banks will release their policy statement. Data released by the RBI showed FX reserves rose by $1.727 billion to $573.727 billion in the week ending January 20. This is the second consecutive week that reserves have increased. In the preceding week, India’s forex reserves jumped by $10.417 billion to $572 billion. We expect the USDINR(Spot) to trade sideways and quote in the range of 81.10 and 81.60,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

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Rupee opens higher and may appreciate further on weakness in the US dollar, risk aversion in global markets

Rupee gained by 11 paise to 81.61 per dollar on Wednesday, up from its previous close amid ease in the value of the greenback against a basket of six peers. Global crude oil benchmarks rebounded putting pressure on the currency. The dollar index was trading 0.1 per cent lower at 101.6. Sharp gains in the local unit were prevented by a rebound in crude oil prices amid optimism on-demand recovery in China. Brent crude futures were trading 0.4% higher at $86.5 per barrel at the last count. WTI futures, too, were trading 0.3% higher at $80.4 per barrel at the last count.

“The RBI protected the sharp appreciation in the rupee by intervening in the spot market around 80.90-81.00 levels, which pushed the speculators to unwind their short positions in the USD. Further, buying of USD by oil companies amid a rise in crude oil prices coupled with FII’s remaining net sellers have mounted pressure on the rupee,” said Amit Pabari of CR Forex. Market participants remain cautious ahead of the important Union Budget that is scheduled next week. Any announcement of a widening of the fiscal deficit could keep the rupee weighed down.

“A tussle between the buyers and sellers is likely to continue as inflows pertaining to Adani FPO and RBI bond issue shall keep the rupee on a stronger note and RBI’s intervention on the other side could limit the gains near 80.80 levels. Well, the broad range would remain between 80.80 to 82.10,” Pabari added.

The US$INR pair is expected to face rejection near the 81.80-82.00 zone and is likely to slide towards 81.30 following an improvement in global risk appetite and weakness in the dollar. The further expectation of weaker US advance GDP numbers, which is due on Thursday could restrict the recovery in the dollar. “The pair is still hovering below the 20-day EMA, which could act as key resistance. As long as it remains below 81.80 the pair is likely to move towards the immediate support at 81.30,” said analysts at ICICIdirect.

According to Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, in the next couple of sessions, advance GDP and core PCE index numbers from the US will be keenly eyed and better-than-expected economic data could extend gains for the dollar. “We expect the USDINR(Spot) to trade sideways and quote in the range of 81.10 and 81.60,” he said.

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Wheat prices hit a fresh record high following a delay in a stock release by the government

Indian wheat prices hit a fresh record high on Monday, following a delay in releasing extra stocks by the government to boost supplies and calm the domestic market reeling from shortages triggered by last year’s lower crop, dealers and farmers said. India, the world’s second-biggest producer of wheat, banned exports in May 2022 after a sudden rise in temperatures clipped output, even as exports picked up to meet the global shortfall triggered by Russia’s invasion of Ukraine.

Record-high wheat prices despite the export ban indicate a far bigger drop in last year’s output, traders say. According to government estimates, wheat output fell to 106.84 million tonnes in 2022 from 109.59 million tonnes a year earlier. “Farmers have sold their crop, traders’ are running out of stocks, but demand is robust,” said Gopaldas Agarwal, a trader based in the central Indian city of Indore. “Demand-supply mismatch is pushing up prices, and prices will remain firm until supplies start from the new season crop.”

Farmers plant wheat in October and November, with harvests from March.

Wheat prices in the Indore market – a benchmark – jumped to a record 29,375 rupees ($361.09) a tonne, up nearly 7 per cent so far this month after rising 37 per cent in 2022. In New Delhi, wheat prices rose almost 2 per cent on Monday to a record 31,508 rupees. Local wheat prices could rise by another 5 per cent to 6 per cent unless the government releases stocks in the next 15 days, said a dealer with a global trading firm. He did not wish to be named in line with his company’s policy.

“Even bulk consumers like wheat flour millers are struggling with lower supplies and higher prices,” said Rajesh Paharia Jain, a New Delhi-based trader. “Clearly, for the government, there is no time for procrastination.” Authorities have repeatedly said the government would offer 2 to 3 million tonnes of wheat from its reserves to help flour millers and biscuit makers to cool record-high prices.

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