According to analysts, a Brexit trade deal and consistent foreign fund inflows will cause further appreciation in Indian Rupee as the currency ends 2020 on a high note.
The rupee has been weak in 2020. The currency did not appreciate much despite record inflows.
Furthermore, India’s forex reserves resumed increasing in order to make exports competitive. Notably, the Reserve Bank of India usually enters the markets via intermediaries to sell or buy U.S. dollars to keep the rupee in a stable area.
Significantly, India’s foreign exchange reserves increased by $2.563 billion to $581.131 billion.
Moreover, the Reserve Bank’s lesser intervention is likely after the U.S. Treasury Department called it out to shorten its market activities.
All these factors and a continued supply of foreign funds will lead to an appreciation move in the rupee. Significantly, the Indian rupee closed flat for the week close of 73.54 a dollar.
Recently, FIIs inflows have strengthened a rally in equities and gave an appreciation push to the rupee. Significantly, the FIIs have so far this month invested more than $6 billion in the equities and $594 million in the debt segment.
COVID-19 vaccine will continue to support the risk sentiments
According to Devarsh Vakil, HDFC securities Deputy Head of Retail Research, continued foreign fund inflows are helping rupee bulls. He also added that spot USD/INR has resistance at 73.90 and support at 73.45 for this week.
Rahul Gupta, head of currency research, announced that the Brexit deal and the rollout of an efficient COVID-19 vaccine would continue to support the risk sentiments.
Gupta says an efficient COVID-19 vaccine will continue to support the risk sentiments and hold USD/INR bears active.
Furthermore, until the global economy can recover rapidly, once we defeat the coronavirus, the USD/INR spot’s upside risk will remain intact.
Furthermore, a break of 74.50 will push prices to 75.25 and then 76.30. While a break of 72.75 will drive the spot price to the 71.50-72.00 zone.