Rupee to strengthen in Rs 73.5-74 range against US dollar in short run: Report

The rupee is likely to strengthen in the range of 73.5-74 against the US dollar in the short run, helped by higher overseas inflows, says a report.

The rupee has strengthened in August due to a combination of both fundamentals as well as the external factor of dollar weakening.

On Monday, the domestic currency closed at 73.60 against the greenback after opening at 73.26.

"Given the direction of FPI and the possibility of FDI and ECBs (external commercial borrowings) to be positive, the rupee would tend to strengthen in the region of Rs 73.5-74/USD in the short run until economic activity recovers and imports increase," Care Ratings said in the report.

During August, FPI flows have been very buoyant with nearly USD 6.8 billion being registered till last week, with the equity flows dominating, thus providing an upward thrust to the stock market. The Sensex was up by 4.6 per cent on a month-on-month basis, it said.

The agency said accretion in forex reserves is probably the quick indicator of the net effects of all forex inflows and outflows.

As of August 21, the forex kitty witnessed an increase of almost USD 3 billion during the month. It stood at USD 537.548 billion in the week ended August 21.

The report said the reserves could have gone up further in the last week of August as the rupee gained significantly in the last few trading sessions ending August 28, 2020. 

It further said RBI intervention will weigh heavily on the market to stem the appreciation of the rupee and could be the deciding factor. 

The rupee will wait for signals from the RBI and could strengthen further if there is no action taken given the inflow of FPIs, the report said.