USD/INR pair started the day on a strong note, but failed to hold near day’s high!

After showing a bearish tone from the past two sessions, the USD/INR pair today started the session on a strong note but failed to hold its initial rally. Read on to find out more.

With stronger Asian currencies and risk sentiments rebounding, the USD/INR pair started off the day on a strong note but various factors led it to fail in holding at the top. Global inflation worries are paramount amid the Russia-Ukraine conflict. This has led the USD/INR pair to skid down from its high of 75.74 levels. According to reports, the Russia Ukraine crisis is likely to aid crude oil prices to soar adding qualms for the central banks around the world. Moreover, the rising crude oil prices would in turn put pressure on the USD outflow of India, further weakening the INR against the USD.

The depreciation of the INR against the USD is amid a surge in the inflation rate in India. Furthermore, the rise in inflation is likely to continue until the Russia-Ukraine conflict comes to an end which is already responsible for the rally in crude oil price. In the near-term, crude oil prices are anticipated to hit their seven-year high of USD 100 per barrel and the ongoing geopolitical tensions might further inch it to USD 105 per barrel.

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The Foreign Portfolio Investors (FPI) are still exiting their holdings from the Indian stocks and bonds. In the year 2022, till now FPIs have sold nearly USD 5.8 billion and close to USD 12 billion since the end of September 2021. That being said, this persistent selling has been covered by inflows from Foreign Direct Investments (FDI) and External Commercial Borrowings (ECB). However, there are no signs of panic visible among traders despite a rise in oil prices. This might be due to strong commercial flows and favourable real yields that is encouraging them to stay in the rupee.

Having said that, for the coming week 75.09, 75.43 and 75.74 would act as crucial resistance for the USD/INR pair, while the levels of 74.76 and 74.43 act as an important support level. Further, the rising crude price, inflation and geopolitical tensions would further guide the direction of the pair.

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