Rupee trades strong against US dollar, here's what is supporting the domestic currency

The Indian rupee strengthened against US benchmark dollar index at interbank forex market on Monday, on the back of positive domestic indices that were trading higher ahead of macroeconomic datas like CPI, WPI, IIP. Both rupee and stock exchanges reversed previous trading session losses and were trading upbeat. In early opening, the domestic currency  rose 10 paise against the US dollar to 67.40. Also weakness in the greenback against other currencies overseas ahead of key central bank policy meetings and the US-North Korea summit this week had supported the domestic currency. 

At around 1230 hours, the Indian rupee was trading at 67.355 above 0.160 points or 0.24% against US dollar. 

Anindya Banerjee, Analyst at Kotak Institutional Equities said, “G-7 impasse between US and rest has not had any major adverse impact on risk assets on Asian this morning. Even Rupee has opened strong, trading at 67.45 levels on spot. Asian currencies are mostly trading higher against Greenback, between 0.1-0.2% higher for the day. Crude oil is trading flat around 76.50 for Brent. There are no major economic data scheduled to be released from India but traders have a lot to digest when it comes data from major economies like Eurozone, US and UK.” 

Banerjee added, “USDINR may react to trends in domestic bond yields, which is hovering around 8 handle on the 10 year. If yields continue to move higher, well above 8.00, which appears likely, it can lift USDINR towards 67.80 levels. On the other hand, if oil treks lower, with risk appetite holding in global markets, USDINR can drift lower towards 67.20 levels on spot.” 

In previous trading session, the rupee weakened by 0.16% at 67.530 against US dollar index. Also, foreign outflows and negative domestic indices added to weighed on rupee. Last week, FPI removed Rs 1,020.30 crore cumulatively in hybrid, equity and debt market, as per NSDL data. 

Currently rupee is performing in the midst of -  when US yields cool off, oil jumps. When oil cools off, Dollar takes off against EM currencies. When everything else seems risk on, reverberations of EM contagion start creating a lot of noise. 

Banerjee said, “Keep an eye on oil, rates and risk to gauge the direction of USDINR. Offshore premium continues to be supportive for USDINR, as offshore is trading at a premium of 6/7 paise on the 1 month tenor.” 

“Technically, USDINR remains in an uptrend, as long as prices hold above 67.20 levels on spot. One can buy between 67.35/67.40 levels with stops below 67.20. Resistance can be expected closer to 67.80 and then 68.00 levels on spot. Nevertheless, incase USDINR closes below 67.20, one can go short for a target 66.85/90 levels on spot,” said Banerjee. 

Moreover, the benchmark Sensex was trading at 35,608.22 above 164.55 points or 0.46%, whereas Nifty 50 surged by 59.05 points or 0.53% trading at 10,825.15.