The Indian rupee witnessed sharp depreciation in June after the US dollar strengthened significantly. The upmove in the greenback was driven by the US Federal Open Market Committee’s (FOMC) surprise hawkish shift in June when policymakers signalled two interest rate hikes by the end of 2023.

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This resulted in the dollar index posting its biggest monthly rise since November 2016. The dollar index has gained about 2.5 percent against a basket of currencies last month.

The rally was also supported by traders’ cautiousness ahead of unpredictable US labour data and concerns on the spread of the Delta Coronavirus variant.

Analysts believe the dollar to remain stronger going ahead, while the rupee to depreciate even further.

“We expect rupee depreciation to continue towards 75.50 level as a stronger dollar is likely to add pressure to the rupee along with continued forex buying to boost export revenues by RBI that is likely to support the pair in the near term,” ICICI Direct said in a report.

However, stronger domestic equities may put pressure on the pair on the higher side around 75.50 level, it added.

However, the RBI is expected to intervene if the USD/INR rises breaches 75 level, said Amit Sajeja, Vice President, Research- Commodities & Currencies, Motilal Oswal Group.

“The RBI may intervene if the rupee depreciates above 75 a dollar level and the central bank may utilize the high reserves to cool the USD/INR pair,” Sajeja said.

Meanwhile, surging crude oil prices will keep USD/INR at elevated levels. The oil prices hit their highest levels since 2018 after OPEC+ discussions were called off, heightening expectations that supplies will tighten further just as global fuel demand recovers from a COVID-19-induced slump.

The Brent oil hovered above $77 a barrel level.

According to Sajeja, the USD/INR pair will see some correction going ahead and it would be difficult for the pair to sustain above 75.00 level.

“Even though crude prices are rising, the rupee would not breach 75 per dollar level. The local currency would trade in the range of 73.50-75 per dollar this month,” Sajeja said.

(Edited by : Aditi Gautam)

First Published:Jul 6, 2021 3:05 PM IST