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Indian Rupee heading for strength?

HYCM

By Giles Coghlan, Chief Currency Analyst at HYCM

An interesting one for those that trade the Indian Rupee. India is now on track to record a large current account surplus for the fiscal year of 2021. The current account surplus is now expected to show a surplus of around $72 billion vs a fall in the current account of $24.7 billion from 2020. Now, the Reserve Bank of India may try to limit some of those inflows. The RBI will try to absorb the balance of payments via $80 billion in net FX purchases in 2021. However, there is still a steep INR forwards curve that can offer a decent carry trade for investors. There is a ‘double whammy’ effect as countries with a current account surplus tend to be rewarded by the FX sphere with a strengthening currency.

USD weakness is gaining pace

The passing of the European Recovery fund this week added extra weakness to the USD. The show of European solidarity has been strong and sent out the right message to the market which now sees a heavy call option skew to prices as high as 1.2000. The EURUSD took out the 1.1500 level and the pressure is now on for the US to pass the further stimulus. This USD weakness is set to continue as COVID-19 cases grow and President Trump admits that the outbreak will, ‘get worse before it gets better’. Dollar falls remain strong in the market.

USDINR

So, this means that the bias is set for the USDINR to fall lower. Expect sellers on stop on a break of 74.22 to the downside.


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