Rupee will stay strong as FPIs will keep pumping dollars into Indian market, says Kshitij Purohit


In the short run, the dollar will be strong but in the mid to long run, the American currency will weaken and the rupee will gain on FPI inflows.

Kshitij Purohit

March 04, 2021 / 02:36 PM IST

The domestic economy is looking good, supported by strong demand and it seems well on track to recover from the damage caused by the coronavirus outbreak.

The Indian rupee appreciated against the dollar, aided by upbeat risk appetite in the region. Corporate dollar and equity portfolio inflows into the domestic equity markets also helped. However, emerging markets like India face a new risk in the form of the $ 1.9-trillion stimulus cleared by the US House of Representatives.

The market expects inflation to rise due to the massive stimulus. Rising US  bond yields are also a concern. The US dollar index is also above the 91-mark, putting pressure on the domestic currency.

All eyes are now on US central bank chief’s speech later today. Investors and market not only want Jerome Powell to indicate to bond market that Federal the Reserve may act to bring down yields but also announce an extension to the supplementary leverage ratio.

In face of these developments, dollar will be volatile against major currencies.

We can conclude that in the short run, the dollar will be strong against the rupee but in the mid to long-run it will weaken and the Indian currency will gain as foreign portfolio investors will keep pumping dollars in India.

Technically, the rupee closed firm against the dollar, taking cues from strong economic data and weakness in the dollar index.

USD-INR is trading in the range, where resistance is 74.20 and support at 73.60. The 100-day SMA is at around 72.60.

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Kshitij Purohit