Rupee may strengthen further in near term to around 81 against dollar: Experts

The rupee is likely to strengthen further in the coming days on expectations of further inflows from bonds and an easing dollar index, forex experts said.

“Heavy bond inflows and private bank flows with broader USD weakness did assist the rupee to strengthen. The rupee still has scope to further strengthen as more bond inflows are lined up,” said Kunal Sodhani, vice president at Shinhan Bank (Global Trading Center, FX and Rates Treasury).

Heavy bond inflows refers to the expected foreign flows in sovereign green bonds. The auction for these bonds will take place on January 25. Private bank flows refers to the demand from importers and exporters.

Further inflows from the corporates such as the Adani follow-on public offer on January 25 will strengthen the rupee too, said analysts.

Since the start of this month, the rupee has appreciated sharply and was trading at 81.58 against the dollar at the time of writing.

As per foreign exchange dealers, the domestic currency has appreciated due to multiple reasons. “There were corporate flows of SBI Infrastructure bonds, RBI green bonds and Adani FPO starting on January 25, which led the rupee to appreciate. This was despite the Reserve Bank of India (RBI) being active in the markets at 82.90 selling dollars,” said Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors LLP.

Bhansali added that oil companies, which had bought heavily from 82.50 to 82.90, stopped buying, resulting in dollar demand coming down.

The initial rally in the dollar-rupee pair was seen from 80.13 to around 83.29 levels, going down to 80.52 before consolidating between 82.50 and 83.00 levels for quite some time.

Also read: Rupee slides as broader markets jittery, breaches key level

Rupee range till budget

Dealers expect that the rupee is likely to remain strong against the dollar till the budget and may trade between 80.60 and 82.10.

“I personally believe 80.20 may act as a strong support and the RBI may take advantage to build in forex reserves if we are able to see such levels,” Sodhani said.

The rupee has remained volatile in 2022 and depreciated around 10 percent against the dollar.FX reserves

Treasury experts said that the RBI will play both sides either on buying or selling dollars. “This time is appropriate for the central bank to build reserves,” said a treasury dealer.

Foreign exchange reserves did see a drop from around $643 billion in XXX to around $572 billion currently.

“FX revaluation reserves also played an important role in the movement of overall FX reserves apart from pure intervention,” Sodhani said.

The RBI has been intervening in the forex market to defend the rupee from depreciating sharply, selling dollars heavily to support the local currency. From June to October of 2022, the RBI was a net seller of dollars in the currency market, RBI bulletin data showed.

The central bank became a net buyer of foreign exchange in November.