Downslide in USD/INR May Halt Soon Due to Grim Situation in Covid Spread

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Downslide in USD/INR May Halt Soon Due to Grim Situation in Covid Spread

opened the day a bit firmer at 74.26 registering a gain of 20 paise/USD over its Friday’s close. The currency pair posted a significant loss from the high of 75.32 on 22-4-2021 to a low of 73.9450 on 30-4-21 even as daily covid cases crossed the 3,00,000 mark consecutively in the last 10 days period. April recorded a staggering 6.9 million new infections, the highest tally for any month in any country so far.

During April 2021, the registered a fall of 2.49%, the worst performer among Asian stocks after the 3.50% slide in . Taiwan weighted index was the best performer with a gain of 6.01%.  After an average monthly inflow of USD 2.55 billion into Indian equities by foreign investors, the equity inflows turned negative at about USD 1.4 billion in April. The State election results will also have a solid impact on the domestic equities.

On 1-5-21, India recorded for the first time more than 4,00,000 new covid-19 cases as they battle a devastating second wave. In the current situation, a rise in the rupee exchange rate beyond the 74.00 level would remain unsustainable and a quick rebound to 74.50 plus level is definitely on the cards before the end of this week. Importers and exporters shall position themselves to hedge their exposures appropriately as we expect the rupee to trade in the 74.00 to 75.00 range in the next two weeks period with the weaker bias.

India’s manufacturing industries pin hope on a speedy recovery. Though the manufacturing industries see some damage from the second wave of the pandemic, the pent-up demand could return immediately when the situation improves in the near future.

In April 2021, the fell by 2.07% which led to an appreciation in Euro and GBP by about 2.50% in the corresponding period. The fall in US yields by about 2.40% in April supported the down move in the USD index. After the euro touched a 2-month high of 1.2150%, the single currency retreated to currently trade at 1.2030 as the euro is more sensitive to the European economic outlook. Eurozone GDP data show a year-on-year drop of 1.8% in the first quarter of 2021 stronger than expectations of a 2% fall. European stocks ended lower on Friday after dismal economic data stalled optimism about the recovery.

Partial lockdown measures have been imposed in 11 States and UTs to contain the surging coronavirus cases that have overwhelmed the health care system. The covid-19 task force has already advised the Federal Government to impose a national lockdown. The Government is at present not favouring a complete lockdown as it would curtail economic activity almost similar to a fall in economic output by 24% in April-June 2020. Hence the Government is advising the States to decide on the curbs and take all efforts to avoid a lockdown. The fears of a national lockdown have already raised concerns and the domestic currency and stocks may start to react negatively. Hence we reiterate our view the rupee’s uptrend is complete and the start of the second phase of the downtrend shall pull down the currency to test the 75.00 level yet again and we expect the trading range to hover between 74.00 to 75.00 with a negative bias.

The trade data released on Saturday showed India’s trade effort widened to USD 15.24 billion in April from USD 30.9 billion in the previous month. India’s exports surged to USD 30.21 billion and imports grew to USD 45.45 billion. Due to the lower base effect in the comparable period last year, exports and imports surged by 197.03% and 165.99% year-on-year basis. Going forward, we expect the position of trade deficit to be much lower than the one recorded in April 2021.

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