Rupee - Dec 30, 2020 - Reliance Securities

Mr. Sriram Iyer, Senior Research Analyst at Reliance Securities

The Indian rupee continued to trade higher against the U.S. currency amid dollar selling by foreign banks and a broad uptick in Asian currencies.

The rupee was quoting at 73.30 to the dollar compared with 73.43 in the previous session. The local unit had earlier reached an over-two-month high of 73.25 after opening at 73.36.

"The main question is whether RBI will step in later in the session or allow the rupee to drift further higher. Based on previous instances, RBI will come in and rupee will surrender a part of its advance," a dealer at a private bank said. "If that does not happen, dollar offers by foreign banks, likely related to custodial inflows, could lead the rupee to strengthen to near 73.10."

The rupee's climb to near-two-month highs was helped by the dollar's decline against its major peers and Asian currencies. The dollar index was down 0.2% at 89.77, not too far from the day's low of 89.71. The Malaysian ringgit and the Indonesian rupiah led the way for Asian currencies.

The dollar's fall was attributed to more position-building amid expectations that the currency is likely to fall more next year. A synchronized recovery in the world economy combined with expectations that interest rates in the U.S. will remain low for a long time will likely prompt the dollar to extend this year's losses.

"A rapid recovery in the global economy should weigh on the safe-haven dollar, even if the US economy performs well," Goldman Sachs said in a recent note. "Our USD cross forecasts translate into a 6% decline in the broad trade-weighted dollar index over the next 12 months, and a 15% real depreciation from its 2020 peak to the end of 2024."

In the emerging market space, the rupee is one of the currencies that Goldman Sachs recommends along with Mexican peso and South African rand to go long on against the dollar, citing a combination of value, real carry, and current account dynamics.

"We see the pressure as skewed towards lower USD/INR, although the RBI has been building reserves, which is slowing the pace of INR appreciation," it said. "However, we think the RBI will tolerate slightly more currency strength to help curb inflation."

Meanwhile, the BSE Sensex inched 0.1% lower and other Asian gauges were mixed. U.S. futures ticked higher after pulling away from record highs yesterday.

Technically, USDINR Spot has given a breakdown of Horizontal trend line after a long congestion between the range of 73.40-73.75 levels. Below 73.40 levels will continue its bearish momentum. Support is ta 73.15-72.95 levels. Resistance at 73.40-73.65 levels.

USDINR Spot could trade in a range of 73.15-73.45 levels in coming session.

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Source : Equity Bulls

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