Rupee - Dec 17, 2021 - Reliance Securities

Mr. Sriram Iyer, Senior Research Analyst at Reliance Securities

The Indian Rupee ended unchanged against the U.S. Dollar on Friday but depreciated for the 4th straight week, as hawkish policy tilts by major central banks worsened concerns of portfolio outflows from the country.

The Rupee ended at 76.09, unchanged against previous session as exporter hedging offset weak shares and weak Asian currencies.

For the week local unit posted a 0.4% weekly decline, adding to the 2.1% depreciation in the last three weeks.

The local unit had briefly slipped to a year-to-date low of 76.31 earlier this week amid selling by foreign portfolio investors and hawkish tilt from major central bank.

Foreign investors have been net sellers in Indian stocks for a fifth straight day through yesterday, taking out $1.2 billion so far in December.

Risks surrounding the Omicron variant of the coronavirus have fuelled the outflows.

Meanwhile, in the overseas markets the U.S. Dollar was flat this week.

While the Sterling and the Euro could eke out small gains this week.

The hawkish Fed tone was reflected in the Bank of England's decision this week to unexpectedly raise the bank rate to 0.25% from 0.10%, despite the uncertainty posed by the Omicron strain.

Along with the BoE, the central banks of Norway and Mexico, too, raised policy rates yesterday.

The European Central Bank said a pandemic-related asset purchase programme will conclude by March 2022.

The Bank of Japan also dialled back its emergency pandemic-funding today.

OUTLOOK

Looking ahead, the major concern for the market will be inflation.

Investors will be concerned after a spike in retail inflation and a jump producer prices in the U.S., will keep the Federal reserve hawkish.

So, the Fed favoured PCE price index data due next week will be the major driver of markets.

So, the dollar will remain stronger into the Christmas and New year Holidays.

At the same time, the dollar could find resistance at higher levels into week in which major central banks laid out plans to unwind pandemic-era stimulus, with the Bank of England surprising markets with a rate hike.

Domestically, a policy divergence between Reserve Bank of India and a U.S. Fed should also worry investors.

So, a hike in the reverse repo rate in February is likely be accompanied by a repo rate increase early in the next fiscal year.

Moreover, the hawkish tilt by major central banks could make it difficult for the RBI to stay accommodative for long.

Therefore, the Rupee could remain pressure going to the Christmas and New year Holidays.

On the charts, if the USDINR Spot pair sustains above 75.66 pivot level it will continue its bullish momentum up to 76.35-76.96 levels. however, the support zone for the pair is 75.80-75.55 levels.

The USDINR Spot pair could trade in a range of 75.70-76.40 levels in coming week.

In the overseas markets, the Dollar Index is trading below its 21-Daily Moving Average at $96.25 level and sustained trade below could pull the pair to up to $95.81-$95.30 levels. Resistance zone is at $96.44-$97.10 levels.

Source : Equity Bulls

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