View: Rupee may hit fresh record low of 74.80 in the short term

By Gaurang Somaiya

Rupee fell to fresh record low levels following sharp sell-off in domestic as well as global equities. On the domestic front, FIIs were net sellers to the tune of over $4 billion in March, including both equity and debt segment, which also weighed on the rupee. India’s retail inflation eased to a two-month low in February, helped by a smaller increase in food prices. Inflation rose at a slower pace of 6.58% in February compared to estimates of 6.8%. Industrial production rose 2% in January, fastest in the last six months. To curb weakness in the rupee, RBI announced that it will undertake a six-month sell/buy swap to provide liquidity to foreign market. This week on the domestic front, no major economic data is expected to be released, but volatility in global markets is likely to keep participants on edge. USDINR is expected to trade in the range of 74.80-73.80.

After rallying in the last couple of weeks, Euro was weighed down primarily on back of broader strength in the dollar. Last week, in a move to stem a market meltdown the Fed offered $1.5 trillion in short-term loans that could point to more aggressive action from the central bank in coming days to stimulate the economy and stabilize the financial system. The ECB announced yet another stimulus package to help fight-off the coronavirus pandemic. The ECB will provide banks with loans at a rate as low as minus 0.75%, below the minus 0.5% deposit rate, essentially a rebate, and increase bond purchases by €120 billion this year, with a focus on corporate debt. This week on the data front, EZ market participants will be keeping an eye on final CPI number and better-than-expected data could curb losses for the currency. EURINR is expected to trade in the range of 82-84.50

Pound witnessed sharp fall after the Bank of England made an emergency cut to interest rates and incentivized banks to lend more in a wider package of measures. The BoE said that, potentially, more important than the rate cut was its decision to offer banks four years of funding at the new rate plus a fee, so that they could continue to lend during the coronavirus crisis and “bridge a potentially challenging period”. From UK, focus will be on inflation number and weaker-than-expected economic data could further weigh on the currency. Broad strength in the dollar is also likely to keep the currency weighed down. GBPINR is expected to trade in the range of 90.50- 93.20.

(Investors are advised to consult financial advisers before taking an investment calls based on these observations)