USD/INR likely to remain stuck in current trading range of 64 to 65, says Scotiabank

In the near-term, the USD/INR currency pair is expected to remain stuck in its current trading range of 64 to 65. India’s foreign reserves climbed to a record high of USD381.17 billion as of June 2. It comes as no surprise since the INR’s strength had spurred the government’s concerns. Increasing foreign currency stockpile could filter out extreme volatility in local FX market and slow the pace of appreciation in the INR, Scotiabank reported.

The nation’s CPI inflation dropped to 2.18 percent y/y in May from 2.99 percent a month earlier, compared to market forecasts of 2.40 percent. The base effect suggests an even softer retail inflation down the road, although the GST is on track for its rollout from July 1.

In addition, normal monsoon rainfall forecasted by the India Meteorological Department (IMD) would keep the nation’s retail inflation benign. The central bank forecasted India’s headline inflation to average a range of 2.0-3.5 percent in the first half of FY2017-18 and 3.5-4.5 percent in the second half, down from 4.5 and 5.0 percent respectively estimated earlier on April 6.

"We would sell USD/INR should the pair break below the 64 support level," the report said.