How will the Russia-Ukraine crisis, US Fed affect rupee?

Reports of Russian military returning to their base camps stabilised forex markets yesterday, allowing the Indian rupee to rise for the first time in six days.

The Indian currency settled at 75.33 per US dollar-mark on Tuesday, but continued to hover around six-week low levels. It touched 75.64 per dollar-mark on Monday, its lowest level in 2022.

According to media reports, Russian Defense Ministry has said that military units from the southern and western districts of Russia have begun returning to their garrisons, a move that could de-escalate the febrile stand-off between Russia and the west over Ukraine.
The developments comforted investors who lost trillions of rupees in wealth due to Monday’s market rout.
 
The S&P BSE Sensex settled 1,736 points higher at 58,142, while the Nifty50 ended above the 17,350-mark.
In the commodities market, Brent crude futures slumped 2.4% to trade around $94 per barrel-mark.
This sharp drop in crude oil futures eased the demand for greenback in currency markets, alleviating pressure on the rupee too.

But, the rupee-dollar trajectory will likely remain volatile in the near-term till there is a definitive agreement between Ukraine and Russia.
Besides, multi-year high inflation across global economies, along with a dovish RBI policy, is expected to keep dollar demand pumped up in the markets.

“We expect the USD/INR to rise to around 76 in the next three months, as India’s monetary policy normalisation is delayed in a global context, and high commodity prices are weighing on India’s trade balance and will widen the current account deficit further. Moreover, the prospects for Indian government bonds to be included in global bond indices in 2022, which would provide indirect support for the rupee over the medium to longer term, have diminished,” said Sophie Altermatt, Economist, Julius Baer

Vivek Kumar, who is economist at QuantEco Research, too, believes the rupee may reach 76-77 per dollar over the next three months as a sharp rate hike cycle in the US will support dollar bulls.
 
Trade normalisation post pandemic, increased pace of vaccination, volatility in crude oil prices, and uneven foreign fund flow could also put pressure on imports. This, he says, will widen the trade deficit account in fiscal year 2022-23.
 
Though, over the next fiscal year, he expects the rupee to stabilise and see lesser volatile moves in
FY23.
 
Overall, geopolitical developments, crude oil prices, and reversal in low interest rate regime will guide the currency markets over the next few months as the actual impact of these events is yet to be fully priced in by the markets.
 
As regards today, market participants will monitor developments along the Ukrainian border, and their impact on commodity prices.
Back home, stock-specific news flow and listing of Vedant Fashions will be tracked by the markets. 

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