USD/INR: Rupee Opens Higher, Gains 22 Paise In Early Trade

The Indian rupee opened higher, appreciating by over 22 paise against the U.S. dollar in early trade Monday amid buying seen in the domestic equity market.

The dollar to rupee conversion today fell to 74.415 against the U.S. currency, down from Friday’s close of 74.6375. The rupee has lost over 170 paise in June – posting the biggest monthly drop since March 2020, the early days of the pandemic, and weakened about 10 paise so far in this month.

“The rupee reverted 8 paise and ended near 74.62 in the last session. We feel the rupee would remain in a range in the coming days. The dollar fell moderately as a rally in stocks curbed liquidity demand for the dollar. The S&P 500 rallied to a new record high on Friday after China’s central bank boosted liquidity in the financial system by cutting the reserve requirement ratio for banks by -0.5 percentage point to 12.0,” noted analysts at ICICI Direct.

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, was trading 0.06% higher at 92.182, edging lower as weak U.S. data and a fresh surge in COVID-19 cases worldwide has sparked concerns that the nascent economic recovery is already running out of steam.

“US Dollar is expected to trade with negative bias amid rise in risk appetite in the global markets. Further, traders will remain vigilant ahead of key economic data from US and US Federal Reserve chairman Powell testimony before House Financial Services Committee and Senate Banking Committee,” noted analysts at Sharekhan by BNP Paribas.

“However, the sharp downside may be cushioned on rise in US treasury yields, divergence in global monetary policies and on concern that spread of highly infectious Delta Variant of the virus may derail the global economic recovery. Moreover, a rapid vaccination program will lead to economic reopening. 159.2 million people or 48% of US population have been fully vaccinated and 184.1 million people or 55.5% of the population have received at least 1 dose.”

Investors are now looking ahead to U.S. inflation data for June on Tuesday and Fed Chairman Jerome Powell’s testimony before the Senate Banking Committee on Wednesday.

The world’s dominant reserve currency, the USD, is expected to rise further over the coming year, largely driven by the Fed’s expectation of two rate hikes in 2023. A strengthening dollar and growing risk that the Federal Reserve would tighten its monetary policy earlier than expected would push the USD to INR pair higher.

It is worth noting that sustained foreign fund outflows, higher oil prices, and firm U.S. dollar will continue to weigh on the rupee.

Global oil benchmark Brent futures traded 0.17% lower at $75.42 per barrel at the time of writing. Last week, oil prices spiked to a three-year high of $77.84 per barrel as OPEC+ failed to reach an agreement.

Higher oil prices would push up the inflation expectations and widen India’s trade deficit, which could hurt the Indian rupee.

The benchmark equity indices BSE Sensex was trading 250 points or 0.48% higher at 52,637, while the broader NSE Nifty advanced 76.7 points or 0.49% at 15,766.45.

Foreign institutional investors were net sellers in the capital market on Friday as they offloaded shares worth Rs 1,124.65 crore, while domestic institutional investors bought shares worth Rs 106.55 crore, as per exchange data.