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Rupee pares morning gain, slips below Monday’s close vs US dollar; these things will keep rupee weak

The rupee pared early morning gains after opening 12 paise higher at 70.73 per US dollar on Tuesday, tracking the signs of easing tensions between US and China which boosted the sentiments of the investors. At 11.28 AM, the rupee was trading lower at 70.96 levels, down 0.15 per cent from the Monday’s close of 70.86 against the US dollar. On Monday rupee had settled at 70.86 against the US dollar, up 8 paise from Friday’s close of 70.94 against the US dollar amid positive global cues and gains in the domestic equity market. It may be noted that on the year-to-date (YTD) basis, the rupee has strengthened 0.73 per cent.

"Rupee is expected to consolidate at 70.50-71 level for some time," Asif Iqbal, Research Head, Escorts Securities, told Financial Express Online. "We expect weakness to continue in Rupee and Dollar to strengthen. Higher current account deficit (CAD) due to higher crude prices, inflation and fiscal deficit will keep rupee on a weaker footing," Asif Iqbal added.

According to Rahul Gupta, Head of Research-Currency at Emkay Global Financial Services, "The optimism over US-China trade deal and cooling–off US-Iran war capped the gains in USD/INR around 72.10 zone. The Phase-One trade deal agreement will likely be signed this week between US and China, and the market has priced it. Any small delay in this process may generate some negative sentiments in the market, weighing on EM currencies. On local front, 5-year high inflation (7.35%) with subdued growth has created caution amongst local debt traders and regulators putting pressure rupee. Technically, USD/INR spot is expected to bottom out around 70.50 zone, targeting 72.25 in the near future."

The domestic equity benchmarks Sensex and Nifty opened with minor gains to trade flat in the early morning trade. S&P BSE Sensex was trading 40 points or 0.12 per cent lower at 41,810.40 levels, while broader Nifty50 index was ruling at 12,324.75 levels, 4.80 points or 0.04 per cent lower.

Consumer price inflation (CPI) has surged to 7.35 per cent in December 2019 from 5.54 per cent in November on the account of higher food especially vegetable price, according to the data released by the government on Monday evening. The vegetable inflation in December recorded at 60.5 per cent pushed up the inflation at the highest level since 2014. The retail inflation based on Consumer Price Index (CPI) was 2.11 per cent in December 2018. The food inflation rose to 14.12 per cent in December as against (-) 2.65 per cent in the same month of 2018, the CSO data showed. It may be noted that the CPI is on the upscale since October last year. In October, CPI stood at 4.62 per cent but spiked to 5.54 per cent in November.

The government has appointed Michael Debaprata Patra as the RBI's fourth Deputy Governor on Tuesday. Michael Patra, who is currently Executive Director with the Reserve Bank of India, will fill in the post left vacant by Viral Acharya last year. Michael Patra will serve as the Deputy Governor for three years tenure from the time of his appointment.

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