Local Forex Market Is Entrenched In Bearish Expectation Of USD/INR

The foreign fund inflows coming into the market which exceeded more than USD 2 billion in this month led to the exchange rate maintaining a bearish undertone. In the absence of dollar demand in the market, RBI intervention is the only available option to prevent a sharp fall in the currency pair beyond the 73.00 support level. If RBI abstains from the market intervention for a day or two, a significant rise in the rupee to the 72.50 level can easily be seen.

advanced further to 90.35 level as of now as the report indicated the President-elect Joe Biden plans a covid-19 relief package of about USD 2 trillion. The 10-year US T-bond yield is currently trading a bit higher at 1.1100% after registering a high of 1.1870% on 12-1-2021. The single currency’s weakness was on the back of comments by ECB that they will keep an easy stance as long as needed.

The moderate rise in global stocks induced the local stock indices also to register a marginal rise today. After touching a 3-year low of 25,681.90 on 24-3-20, nobody thought that the would climb near to the 50,000 mark giving double-digit returns by the end of 2020. Before the announcement of budget on 1-2-2021, the market participants are cautious about the strength of the current rally, taking cues from the market which registered higher levels before the budget in 2020 and then the market fell like a pack of cards. The market participants are exercising utmost caution in driving the markets much higher from the current levels.

Followed by the lacklustre performance in US stocks, the European stock indices showed a marginal rise at this point of time and we are witnessing a slowdown in the rise of local stock market indices.

Due to sucking of rupee liquidity from the system by RBI through their 14-day reverse repo auction of 3.35% per annum, the tight liquidity in the system led to a moderate rise in short-term money market yields. The 3-month forward dollar premium significantly rose to end the day at 4.92% per annum. The forward market differential between the 3-month and 6-month maturity is 0.07% negative. The forward curve beyond the 3-month maturity and upto 12-month maturities is looking sharply inverted at the long-end of the curve. The 12-month forward dollar premium ended the day a lot firmer at 4.78% per annum.

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