Rupee Outlook: Crude Oil, Risk Sentiment, Inflow of Foreign Funds to Boost Currency; USD-INR support at 77.70

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By Dilip Parmar

Last week ended with the shocking revelation that inflation has not peaked. The months following the Lehman bankruptcy, the aftermath of 9/11 and the dot-com crash, Black Monday, the pandemic panic of March 2020 and the oil shock – there weren’t many events as disastrous since the end of the Second World War for stocks as the last two weeks.

Around the world, 33 rate-setting central banks have raised borrowing costs over the past month. The Federal Reserve is now the most aggressive of the G-10 since the start of the year, a fact that justifies the strength of the dollar and will help to support it. Speculative traders are increasing their bullish bets on the greenback. Net non-commercial long positions in futures contracts linked to the ICE U.S. dollar index hit their highest level in five years, according to the latest data from the CFTC.

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Given the size of the euro’s flow in particular, however, the overall dollar was up just over $2 billion on the week. The Fed’s most aggressive rate hike in two decades has emboldened dollar bulls, as the central bank vowed last week that its fight to restore price stability was “unconditional”. Bulls also have the natural hedge of the dollar smile to give them comfort behind their bets, its history as a safe haven should fears of a policy error push risky assets into another selloff.

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However, the Indian Rupee remained resilient and range-bound among volatile Asian currencies that saw sharp swings and volatility after the hawkish Federal Reserve. Spot USDINR consolidated in the tight range of 77.80-78.30 before settling at 78.07 with a gain of 0.30% or 24 paise.

This week could be another calm for local currency markets with old factors like crude oil prices, risk sentiment and foreign fund flows to drive. Technically, USDINR has resistance at 78.40 and support at 77.70.

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(Dilip Parmar, Research Analyst, HDFC Securities. Opinions expressed are those of the author.)

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