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Indian rupee appreciates on weak dollar, forex reserves and lower imports

Dubai - INR has depreciated more than 4.50 per cent.

India's swelling forex reserves, lower imports and prospects of weakening US dollar are some of the factors attributed to the currency's upward trend.
On Thursday, the rupee pared its initial gains and settled on a flat note at 74.75 against the US dollar to quote at Dh20.36 as escalating tensions between the US and China weighed on investor sentiment, reported moneycontrol.com.
At the interbank forex market, the currency opened on a strong note at 74.65, but erased the gains and finally closed at 74.75, unchanged from its previous closing. During the session, the unit witnessed an intra-day high of 74.52 and a low of 74.87 against the US dollar. 
The rupee appreciated 11 paise to 74.64 against the US dollar to quote at Dh20.33 in opening trade on Thursday supported by weak American currency and foreign fund inflows.
 

"INR depreciated 0.11 per cent to 74.7025 today after appreciating in previous session by 0.09 per cent to 74.6225 against US Dollar. Pair could take support amid rising US-China tension can give support to US Dollar against major currencies. For the day 74.20 and 75.20 could work as support and resistance," said Yogesh Khairajani, Global Market Strategist, Century Financial
Forex traders said the uptick in the rupee was supported by weak greenback, but rising tensions between the US and China could limit the gains for the domestic unit.
Abhishek Goenka, Founder and CEO, IFA Globa, said: "USDINR continues to find support around 74.50. Stops would likely get triggered on break of that level which could result in a swift gamma move. Forwards have got paid with 1y at 296p (3.95 per cent). The three-month 25 delta risk reversals have fallen to pre crisis levels of around 0.95 per cent indicating vols have got skewed in favour of puts."
The United States has ordered China to close its consulate in Houston. Meanwhile, Beijing has denounced the order on Wednesday as "outrageous" and said it would draw a firm response if not reversed.
"Escalating tensions between the US and China could keep appreciation bias limited," Reliance Securities said in a research note adding that weaker Asian currencies could also weigh on sentiments for the local unit.
So far in July, FIIs have been net sellers of both equity and debt by selling nearly Rs15.17 billion worth of Indian stocks and Rs11.85 billion worth of Indian debt. The USD/INR 1-month ATM Volatility has dropped to 5.20 per cent from 5.67 per cent as on July 14.
India's foreign exchange reserves increased by $3.108 billion during the week ended July 10. According to the Reserve Bank of India's weekly statistical supplement, the reserves grew to $516.362 billion from $513.254 billion reported for the week ended July 3.
India's forex reserves comprise foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs), and the country's reserve position with the International Monetary Fund (IMF). On a weekly basis, FCAs, the largest component of the forex reserves, edged higher by $2.372 billion to $475.635 billion.
Similarly, the value of the country's gold reserves increased by $712 million to $34.729 billion. The SDR value inched up by $5 million to $1.453 billion. Additionally, the country's reserve position with the IMF grew by $19 million to $4.545 billion.
"Since the last month, there has been a paradigm shift in the USDINR trading range to 74.50-75.50 from 75.50-76.50. However, the pair is unable to fall below 74.50 on likely RBI intervention and caution over US-China trade war. If the trade tiff escalates then fears of US ending the phase-one deal will arise keeping USDINR afloat. But we don't expect a sharp rally as traders are focusing on the coronavirus vaccine developments and are pretty convinced over getting additional stimulus packages. In spot 75 is acting as a psychological resistance, a consistent trading above that will open doors for 76 zone," said Rahul Gupta, Head of Research-Currency, Emkay Global Financial Services Ltd.
"The fall in ATM Volatility Term structure indicates that the market is not showing signs of stress. Also, USDINR PCR (Put/Call ratio) has fallen to 0.87 per cent from 0.91 per cent seen last week. Also, with 6 days left for the expiry, according to the Max Pain theory, the USD/INR July contract on NSE will expire in between 75-75.25. Thus, until significant cues, we expect USDINR will continue the sideways move within a broader range of 74.50-75.50."
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.08 per cent to 94.91.
"Improvement in forex reserves, lower imports and a prospects of weakening dollar are some of the reasons why the INR is slightly appreciating. Still on a YTD basis the INR has depreciated more than 4.50 per cent. In the near term expect the currency to be in the range of 74-75 range," said Krishnan Ramachandran, CEO, Barjeel Geojit Securities. - With inputs from PTI, IANS, sandhya@khaleejtimes.com