Rupee to end the year on a weaker note against US Dollar

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Indian Rupee ended modestly against the US Dollar when the trading session closed on Tuesday. The session was in the account of foreign banks’ sales on dollars.

Compared to the previous session of 75.02, the domestic unit ended at 74.99. The support zone for the USDINR is 74.45 -74.30 levels, with mentally comfortable level at 75.00.

But the trade above 74.80 could push USDINR to the resistance zone of 74.98 -75.10 levels.

The Rupee has been the best performer among the Asian currencies because of the weaker dollar index and risk-on sentiments. It continued this performance till the ninth day as state banks traded.

But recently, the foreign exchange market volume is thin. The pair’s near-term outlook remains bearish, and analysts expect the Rupee to be at 74.50 for a few days, as resistance has shifted to 74.90.

For the last few sessions, the Rupees has been activated by the weakness of the dollar index and RBI intervention. Most of the market participants are on the sideline, because of the holiday and also the movement is over thin volumes.

As there are no major events to occur on the global front, especially in the economic sphere, the domestic front’s focus will be on fiscal numbers. The pair is likely to be in the range of 74.40 and 75.20.

But as the year closes towards an end, the Rupee is on a weaker note against the dollar. The INR has historically depreciated against the dollar in the range of 1-3% on-year basis.

This year is no different as INR depreciated 2% against the USD. It has somewhat recovered from its lowest level earlier in the month and is trading around 72.263-76.419.

The major factor that led to this fall is the imminent liquidity tapering by the US Fed and other central banks around the world. Foreign Institutional Investors pulled out over ₹30,000 crores from the Indian market leading to tensions in key indices.

It is difficult to implement an accommodative policy, as there is the fear of liquidity tapering and rising inflation. The scenario will force these fears to come true, which is reflected in the weak performance of the Rupee.

The factors that guide the Rupee in the short to medium term are the movement of oil prices, the pace of liquidity, inflation trajectory and RBI intervention.

The rebound of INR to 76 caused suspicion in RBI which made them intervene to control the volatility.

RBI has played a major role in controlling the volatility of INR and also in building a good quantum of foreign exchange reserves to face uncertainty. The recent weakness can be attributed to the FII actions and other factors.

But this is restricted by the CEA instilling confidence in the Indian economy. According to the analysts’ other domestic activities and government policies will help the Rupee, even trade in positive bias.

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