Evening Currency Updates - Jan 14, 2022 - Kotak Securities

Anindya Banerjee, DVP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd.

Rupee managed to eke out gains against USD, thanks to strong corporate $ inflows, FPI investments in stocks, and carry trade-related selling. However, the gains could have been far bigger if RBI had not intervened. We suspect RBI intervention has been quite heavy. This did not allow Rupee to strengthen beyond 73.70 levels on spot and 73.80 on Jan futures. However positive risk sentiments capped upside in USDINR. The result was a slow-motion downward drift but within a well-defined range. Poor macro data did also play a role in keeping USDINR above 74 levels. CPI inflation surged to a 5-month high at 5.6% and industrial production growth in November slowed to a 9-month low at 1.4%. A stag flationary scenario is a negative development for the Indian Rupee. Over the past 8-years, barring a couple of instances, USDINR has behaved like a pendulum, oscillating within a slightly upward drifting range. This kind of behaviour is due to factors like the active role of RBI, high futures/forward premium, the impact of macro policies, and also the largely low volatile environment in the global markets. USDINR has become trending for months together, only on a few occasions when global low volatility has been punctured major risk-off phases. This pendulum nature calls for a more measured approach from traders. One should avoid getting carried away in bullish or bearish views after a 2/3 rupees move has occurred in one direction. After USDINR has moved by that magnitude, traders should reduce the bet size to avoid being caught in the reversal. If one is looking for counter-trend trades, one can do so by using low-cost option strategies. We are in one such move, where after a fall from 76.50 to 73.90, conditions are oversold and RBI seems to be intervening aggressively. Even though technical signals are still bearish but one is advised to have a smaller bet size on shorts to avoid being caught on price reversals.

Source : Equity Bulls

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CurrencyUpdate KotakSecurities INR Rupee