INR under pressure on the back of global Dollar onslaught. US yields continue to rise.

23rd September 2022

INR likely to open around 81.10

Dollar surge remained intact yesterday, and US yields rose, even more, reflecting the ongoing concern around the persistent inflation and the Fed rate action. Dollar Index fell slightly though, primarily due to the sharp appreciation of JPY on the back of an intervention from the Bank of Japan. INR has broken through the resistance zone of 80-80.25 convincingly and is set for a further up move to catch up to the depreciation in other currencies such as CNH and KRW. Equities are down and crude remains subdued.

Dollar Index is at 111.08, with EUR at 0.9830, GBP at 1.1235 and JPY at 142.05. US 10y has shot up sharply to 3.71% now, and the 10y even more to 4.2%. US equities fell for the second day after FOMC, with DOW seeing a fall of 0.35%, and NASDAQ cracking by 1.35%. Indian indices withstood the sharp fall in global equities and managed a 0.5% odd fall. 

INR is now firmly on the backfoot now. The sharp rise in the US yields is now starting to influence the Rupee significantly. A move towards 82 seems the logical path here, but there could be some period of consolidation also depending on how markets behave globally until the next inflation print. Currencies such as CNH are seeing relentless depreciation, and INR is not immune from the Dollar onslaught. The buffer for the Rupee from the India growth story and resilience of the equity markets in the short term could help contain USDINR to the 82-82.50 zone rather than the 84-85 range. But, in the next few months, as central bank rate hikes and the receding liquidity works their way into the economies, there could be unforeseen stresses such as fiscal blowouts or overexposure of banks etc. which might come to the fore. These are still tail-risk events and need not be of concern for now. It is just that we are heading into an uncertain time with a global coordinated rate hike environment, and one has to be watchful regarding the potential volatility anytime.

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