opened the week a tad firmer at 73.60 registering a gain of 10 paise/USD over its previous day’s close. The strengthening dollar could make the currency pair to re-test the 73.85 resistance in the next few days.
On Friday last week, the rupee registered a strong rebound to touch an intra-day high of 73.85 but ended the week a lot lower at 73.50. The strong position of dollar inflows is expected to continue in the coming weeks to enable containment of the trading range in the rupee between 73.00 to 73.85. Without the support of RBI intervention, the dollar supply and demand in the market shall balance to maintain the broad stability in the exchange rate.
The need to maintain export competitiveness to boost export growth, rise in trade gap in the coming months on the back of a growing economy, local stock market supposedly near its peak, reduction of Asset Purchase Plan by developed economies including the US, India’s rising debt to GDP ratio political development in the border nations etc could prevent the rupee to appreciate beyond the 73 levels in the near-term. We expect to see the rupee to end the current fiscal at close to 75 level which is also the prevailing forward exchange rate for the corresponding maturity. We strongly feel the interim developments in the internal and external front shall decide the rupee’s support and resistance levels over the medium-term.
Foreign exchange reserves increased by USD 8.895 billion to reach a record high of USD 642.453 billion in the week ended 3-9-21 mainly due to RBI taking delivery of its forward dollar purchase contracts with Banks due in end-August to the extent of over USD 8 billion, which amount got reflected as an accretion in forex reserves. The outstanding forward dollar purchase position of RBI as of the end of August 2021 is estimated at over USD 30 billion and before the end of March 2022, we expect the forex reserves to increase to USD 670 billion or so with nil outstanding swap position.
The ECB announced on Thursday last week it will slow down the pace of PEPP (Pandemic Emergency Purchase Program) from next quarter while reiterated its pledge to keep the 1.85 trillion euro program running till March 2022 or later if needed. ECB’s stance defers from that of the Fed whose policymakers are preparing to start a gradual wind-down of asset purchases later this year. This announcement had an impact on the single currency and it touched a low of 1.1785 in the early hours of Asian trading today and is expected to inch further lower in the coming days.
Read More: Increasing Forex Reserves Could Restrict Uptick in USD/INR Beyond 73.85