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USD/INR Remains Above 83.50 as Local Equities Sharply Erase Overnight Gains

INDIA
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  • USD/INR looks set to end the session unchanged but continues to operate above the 82.50-83.50 range in which price action has been contained since August last year as the RBI seemingly continues to tolerate a higher USD/INR as it builds its foreign currency reserves.
  • Higher core yields and associated greenback strength following last week’s US CPI data, as well as mounting geopolitical tensions, have been the primary catalysts behind the 0.45% move higher in USD/INR over the past week and broader weakness across EM FX. Nevertheless, the softer showing of the USD index in the past two sessions as well as a moderation in oil prices has limited downside pressure on the rupee since then.
  • Commerzbank note that USD/INR risks are tilted to the upside in the near term, with the biggest risk factor for INR not inflation or growth but elevated oil prices. In 2023, India imported 90% of its oil consumption and about one-third came from Russia. They say if oil prices remain elevated due to lingering geopolitical risks, this will weigh on INR.
  • Local bonds have seen more relief compared to the rupee amid the aforementioned decline in US yields and oil prices. 10y yields sit 2.3bps lower at 7.16%, coming off yesterday’s multi-month lows. Meanwhile, the Nifty and Sensex indices both sharply erased overnight gains towards the end of Wednesday’s session.
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  • USD/INR looks set to end the session unchanged but continues to operate above the 82.50-83.50 range in which price action has been contained since August last year as the RBI seemingly continues to tolerate a higher USD/INR as it builds its foreign currency reserves.
  • Higher core yields and associated greenback strength following last week’s US CPI data, as well as mounting geopolitical tensions, have been the primary catalysts behind the 0.45% move higher in USD/INR over the past week and broader weakness across EM FX. Nevertheless, the softer showing of the USD index in the past two sessions as well as a moderation in oil prices has limited downside pressure on the rupee since then.
  • Commerzbank note that USD/INR risks are tilted to the upside in the near term, with the biggest risk factor for INR not inflation or growth but elevated oil prices. In 2023, India imported 90% of its oil consumption and about one-third came from Russia. They say if oil prices remain elevated due to lingering geopolitical risks, this will weigh on INR.
  • Local bonds have seen more relief compared to the rupee amid the aforementioned decline in US yields and oil prices. 10y yields sit 2.3bps lower at 7.16%, coming off yesterday’s multi-month lows. Meanwhile, the Nifty and Sensex indices both sharply erased overnight gains towards the end of Wednesday’s session.