Awaiting US CPI Data, USD/INR Trading Range Hovering Between 72.70 To 73.00

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opened the day at 72.91 almost unchanged from its previous day’s close. During this month till date, the portfolio equity inflows were about USD 1.5 billion and the local stocks are gaining on a moderate scale. Asian shares are trading marginally higher with the exception of the Taiwanese Weighted Index and . We expect the currency pair to trade in the range between 72.70 to 73.15 by the end of this week.

With the rupee exchange rate remaining broadly stable and the forward upto 6-month maturities are currently trading in the 4.00 to 4.30% per annum, the importers and exporters can target to hedge their exposures at a favourable forward exchange rate to enhance the export realization against receivables and minimise the exchange rate losses against import payables. The trade-credit facilities availed by the importers will have a cost-benefit of over  3% per annum in rupee terms on a fully hedged basis.

The forward dollar premia levels upto 3-month maturities are attractive and favourable to the importers to hedge their payables at or near the current spot level. We are expecting a further decline in forwards upto the 12-month tenor due to the huge receiving interest expected in the swap market. The forward dollar premium for a specific maturity of 6-month can be expected to equalize with the anticipated depreciation in the rupee exchange rate and hence the hedge effectiveness shall be neutral both for the hedged and unhedged status of the payables.

US dollar is trading close to the 90.00 level as traders are awaiting the US CPI data to assess price pressures and to ascertain whether the Fed is getting closer to starting talks about tapering asset purchases. Thursday’s US CPI report will be one of the major economic indicators before the Fed’s rate decision on the 16th of this month. Softer-than-expected jobs data however quelled expectations of an early tapering by the Fed of its bond purchases program. 10-year US T-bond yield touched a low of 1.5130% yesterday, down by 26 bps from the high of 1.7740% registered in March 2021.

Foreign Banks are expected to sell dollars on account of foreign fund inflows into Indian companies that are looking to raise capital by way of QIP of shares, IPOs, bond issuances etc. These inflows would keep the rupee well supported at close to 73.10-20 level before the end of June, with the exception of the market’s outlook on US CPI data to be released on Thursday evening.