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Rupee to depreciate on strong dollar, FII outflows, risk aversion in markets; USDINR to trade in this range

The Indian rupee is expected to depreciate further on Wednesday amid strong dollar and risk aversion in the global markets. Additionally, persistent FII outflows and widening of current account deficit will hurt rupee. Market participants will keep an eye on FOMC meeting minutes. US$INR (July) is expected to trade in a range of 79.20-79.65, according to ICICI Direct. In the previous session, rupee depeciated to hit a new low of 79.37 against the dollar after the govt reported an all-time high trade deficit of $25.6 billion for June. The local unit opened weak and was trading at 79.09 early in the day before it slipped to an all-time low of 79.37 at close after the dollar gained against other currencies including the euro. Rupee closed at the day’s low, losing 42 paise over Monday’s close of 78.95.

Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities

“USDINR spot closed at a fresh all-time high at 79.37, up 42 paise on spot. A sharp sell-off in EURUSD due to recessionary fears triggered a risk-off trend across global equities. A double whammy of weak equities and strong US Dollar Index caused Rupee to depreciate against the US Dollar. Low forward premium and offshore derivatives quoting a premium over onshore are signs of unwinding of carry trade which is a major headwind for the Rupee. Over the near term, we expect USDINR to trade with an upward bias, within a range of 79.00-79.80 on spot.”

Sugandha Sachdeva, Vice President – Commodity and Currency Research, Religare Broking

“The Indian rupee has slumped to a new record low of 79.37 mark against the dollar, depreciating by around 0.50% on the back of a rise in the dollar index towards a new twenty-decade peak. Besides, heavy portfolio outflows, soaring crude oil prices, and a rising interest rate regime of the major central banks have been the key catalysts behind this recent bout of weakness in the rupee-dollar exchange rate. On the domestic front, India’s trade deficit has swelled to a record high of $25.63bln in June amid high commodity prices, leading to a rise in the import bills. Besides, the current account deficit is expected to widen to around 2.9% of GDP in FY23 as against 1.2% in FY22, which is weighing on the domestic currency. Moving ahead, we foresee the Indian rupee heading lower towards the 80-81 zone against the dollar, though the RBI is expected to proactively intervene in the markets to curb the pace of decline in the domestic currency.”

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

“Rupee fell to fresh all–time lows on concerns of a wider current account deficit came to the forefront after the country’s trade deficit hit an all-time high in June. FIIs outflows from equities in the month of June stood at $6.6 billion, the highest since March 2020, taking the total outflows so far in 2022 to over $30 billion. Dollar rose sharply against its major crosses on back of safe haven buying on concern of rising recessionary fear. U.S. Treasury yields tumbled to one-month lows and a key part of the yield curve inverted for the first time in three weeks as economic worries dented risk appetite. This week focus will be on the U.S. Federal Reserve and European Central Bank minutes from their most recent policy meetings, as well as U.S. payroll numbers for June due on Friday. We expect the USDINR(Spot) to trade with a positive bias and quote in the range of 79.05 and 79.80.”



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