Indian Rupee: Likely To Come Under Pressure

6 Apr 2022 , 08:50 AM

The Indian rupee is likely to come under pressure, tracking strength in the US dollar in early trades on Wednesday, 06 April 2022, even as crude oil prices show signs of retreating. Surging US treasury yields sent the dollar sharply higher overnight as comments from Federal Reserve Governor Lael Brainard spooked investors about potential aggressive actions by the central bank to control inflation.

Meanwhile, focus on the domestic front shifts to RBI policy outcome due by end of the week. Reserve Bank of India (RBI) Governor Shaktikanta Das will unveil the first monetary policy of the new financial year on Friday, 8 April 2022, after a two-day review amid concern over inflation that is quickening on the back of higher crude oil and other commodity prices.

On Tuesday, rupee continued its winning momentum, rising 25 paise to settle at 75.28 against the US dollar. At the interbank forex market, the domestic unit opened at 75.54 against the US dollar and touched an intra-day high of 75.28 and finally closed at 75.28, registering a rise of 25 paise over its previous close. On Monday, the rupee started the financial year 2022-23 on a bullish note, spurting 21 paise to close at a one month-high of 75.53.

Domestic key indices ended with modest losses on Tuesday, snapping a two-day rising streak. The S&P BSE Sensex slipped 435.24 points or 0.72% at 60,176.19. The Nifty 50 index shed 96 points or 0.53% at 17,957.15. Foreign portfolio investors (FPIs) bought shares worth Rs 374.89 crore, while domestic institutional investors (DIIs), were net buyers to the tune of Rs 105.42 crore in the Indian equity market on 5 April, provisional data showed.

Overseas, Asian stocks declined on Wednesday, mirroring losses seen among their peers on Wall Street following an overnight surge in the U.S. 10-year Treasury yield. Wall Streets main indices fell on Tuesday, dragged by weakness in tech and other growth stocks, after comments from Federal Reserve Governor Lael Brainard spooked investors about potential aggressive actions by the central bank to control inflation.

After opening the day slightly positive, stocks fell and rates hit their highs after Brainard, who is typically considered one of the more dovish Fed members, said the central bank needs to shrink its balance sheet ?rapidly? to drive down inflation. ?Inflation is much too high and is subject to upside risks,? she said, noting the Fed needed a steady pace of rate hikes as well.

Meanwhile, the dollar edged up to its highest level in nearly two years on Wednesday after jumping overnight on more hawkish comments from a Federal Reserve official, while the euro was hurt by the prospect of new Western sanctions on Russia. The dollar index, which measures the greenback against six peers, gained 0.15% in early trade to 99.620, its highest level since May 2020. The 10-year Treasury rose to its highest level since May 2019 on Tuesday, hitting a high of 2.562% before settling at 2.55%. The yield on the benchmark 10-year Treasury note last sat at 2.6011%, well above the 2-year Treasury notes yield of 2.5751%. The 10-year Treasury yield jumped overnight after comments from U.S. Federal Reserve Governor Lael Brainard suggested an aggressive approach to shrinking the central banks balance sheet.

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