Geo-political tensions to flare-up rupee’s weakness

Last week, the rupee weakened to 75.30 levels before closing at 75.10 to a US dollar.
rupee dollar

Mumbai, Jan 29 : Geo-political tensions in Europe as well as rising crude oil prices are likely to weaken the Indian rupee.

Geo-political tensions emanating from the Russia-Ukraine conflict have spooked investors in India’s equity markets, thereby triggering massive fund outflows.

As per estimates, till now in January 2022, the FIIs have sold over Rs 30,000 crore worth of equities due to various global factors, including the US Fed’s plans to tighten its monetary policy.

Notably, any rate hike by the US Fed drives away FIIs from India and other emerging markets.

Consequently, the rupee is expected to trade with a weak bias up to 75.50 to a US dollar in the coming week.

“A hawkish US Fed, crude oil at $90 per barrel and non-stop selling by FPIs took their toll on the Indian rupee, but still we saw orderly depreciation unlike in the past,” said Sajal Gupta, Head, Forex and Rates, at Edelweiss Securities.

“Even though high reserves give comfort, fundamentals suggest more weakness ahead. Crude oil is signalling a move above $100 per barrel,” Gupta added.

Last week, the rupee weakened to 75.30 levels before closing at 75.10 to a US dollar.

Besides, the latest data showed that India’s foreign exchange reserves fell by $678 million during the week ended January 21, 2022 to $634.287 billion from $634.965 billion reported on January 14.

“Going ahead, all eyes will be on the Union Budget in which announcements related to global bond inclusion are expected, which could bring huge foreign inflows. As per estimates, inclusion in global bond alone can bring yearly inflows of $20 to $25 billion,” said Dilip Parmar, Research Analyst, HDFC Securities.

“In coming week, rupee is expected to stay volatile with bearish bias. The local currency is expected to oscillate in the range of 74.60 to 75.50,” Parmar added.

According to Gaurang Somaiya, Forex and Bullion Analyst, Motilal Oswal Financial Services: “Next week, on the domestic front, the Union Budget is scheduled and volatility could increase as we get updates from the Finance Minister. From the US, manufacturing and employment numbers will be released and better-than-expected data could extend gains for the dollar.

“At the same time, ECB and BoE will be releasing its policy statement and expectation is that both these central banks could be a little hawkish.”

Somaiya also said the momentum for USD-INR is expected to remain positive in the range of 74.50 and 75.50.

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