The rupee started the week on a positive note, extending its gains from last week against a bruised dollar, maintaining the momentum created by softer-than-expected US inflation data last week.
Bloomberg showed the domestic currency was last changing hands at 80.52 per dollar after opening at 80.54, compared to Friday’s close of 80.81.
“The rupee seems to be on a roll as inflows increase, as it had its best week in the last four years. The range for the day is expected to be 80.20 to 81.00,” said Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors.
“Asian currencies have also gained quite a bit allowing the rupee to be on the upside. However, higher oil and a high trade deficit should restrict the gains to around 80 levels unless we see a fall in the dollar index towards 100,” he added.
The week started positively for Asian currencies, maintaining the momentum created by softer-than-expected US inflation data last week.
The momentum is clearly in favour of the rupee, but “it makes little sense” in term of risk reward to chase the USD/INR pair lower from these levels, a trader at a Mumbai-based bank told Reuters.
The rupee has already corrected more than 3 per cent from record lows and “then you have to consider oil prices”, the trader said.
But, following a severe drop last week, the US dollar held its ground on Monday as Federal Reserve Governor Christopher Waller stated that the central bank was continuing its fight against inflation on Sunday.
The dollar index fell 3.6 per cent over two sessions last week, its worst two-day percentage fall since March 2009, as a result of somewhat cooler-than-expected inflation data on Thursday.
Global equities rose as investors flocked to risky assets in anticipation that the Fed would scale back its rate increases as inflation peaks.
On Friday, the two-year Treasury yield fell by 30 basis points, the biggest single-day drop since 2008.
“I think the market got a little bit ahead of itself,” Carol Kong, a Currency Strategist at Commonwealth Bank of Australia, told Reuters, adding that Fed officials will probably give the market a reality check, aiding the dollar in recovering some of its most recent losses.
According to Mr Kong, US inflation will probably continue to be high, and the Fed will continue to tighten monetary policy.
The dollar index, which measures the greenback’s performance against a basket of major currencies, fell to 106.610 in early Asia trade, not far from its low of 106.27 set on Friday.
Apart from the regular flow of economic data and policymaker speeches, investors will eye the US President Joe Biden and Chinese leader Xi Jinping face-to-face meeting on Monday.
Meanwhile, oil prices rose in anticipation of rising Chinese demand after increasing 3.5 per cent in the previous two sessions.