Buy USDINR; target of 75.40: ICICI Direct

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ICICI Direct’s currency report on USDINR

Rupee future maturing on October 27 depreciated by 0.68% in Wednesday’s trading session due to an uptick in dollar index and higher crude prices. The dollar index rose on Wednesday toward the one-year high touched last week as surging energy prices fuelled concerns about inflation and interest rate hikes, knocking investors’ appetite for riskier assets and driving flows to safe-havens. Rising inflationary pressures could pose headwinds to growth and have implications for how soon the Federal reserve can raise interest rates. The rupee is expected to depreciate further as stronger dollar amid tapering fears from US Fed may put more pressure on the rupee, going forward. The euro was pinned below $ 1.16 and last bought at $ 1.1567, scarcely higher than the 14-month low of $ 1.1563 it struck last week.

Eurozone yields rose as a government bond sell-off extended on Wednesday on concerns about inflation and potential monetary policy tightening, while a gauge of German inflation expectations hit its highest since May 2013. European Central Bank President Christine Lagarde said on Tuesday she still expected supply shortages or rising energy prices to be transitory, repeating the bank’s long-standing line that the inflation spike will wane next year. Euro is expected to trade with a negative bias as dovish stance by ECB is likely to put further pressure on the single currency. EURINR (October) is expected to trade towards 86.20 level for the day. The British pound dropped half a percent against the dollar on Wednesday as a further surge in energy prices and government bond yields sent investors into safer currencies.

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