Currency market update: Rupee displaying signs of weakness

After exhibiting a negative tone in the previous two days, the USD/INR pair began yesterday’s session on a positive note but failed to maintain its initial advance. Continue reading to learn more.

Yesterday, the USD/INR pair started the day on a high note, thanks to stronger Asian currencies and a resurgence in risk sentiment, but it failed to maintain the peak due to a variety of factors. Concerns about global inflation have risen as a result of the Russia-Ukraine war. As a result, the USD/INR pair has fallen from its high of 75.74. According to estimates, the Russia-Ukraine situation is likely to drive up crude oil prices, raising concerns among central banks throughout the world. Furthermore, rising crude oil prices will put pressure on India's USD outflow, further depressing the INR versus the USD.

The INR's devaluation versus the USD coincides with an increase in India's inflation rate. Furthermore, the spike in inflation is anticipated to remain until the Russia-Ukraine conflict, which has already contributed to the surge in crude oil prices, is resolved. Crude oil prices are expected to approach a seven-year high of USD 100 per barrel in the near future, with continuous global concerns pushing it up to USD 105 per barrel.

Foreign Portfolio Investors (FPIs) continue to sell their holdings in Indian equities and bonds. FPIs have sold about USD 5.8 billion in 2022, and over USD 12 billion since the end of September 2021. Nonetheless, this sustained selling has been offset by inflows from Foreign Direct Investment (FDI) and External Commercial Borrowings (ECB). Despite the spike in oil prices, there is little evidence of fear among carry traders. This might be owing to robust commercial inflows and favourable real returns, which encourage them to remain in the rupee.

Having said that, for the next week, the levels of 75.09, 75.43, and 75.74 will work as critical resistance for the USD/INR pair, while 74.76 and 74.43 will act as essential support levels. Furthermore, rising crude prices, inflation, and geopolitical concerns would all influence the pair's path.