RBI policy, US stimulus hope to strengthen rupee

The Reserve Bank's accommodative policy along with a likely US stimulus package are expected to strengthen the Indian rupee in the short run.

Additionally, fund inflows channelled towards stock markets and corporate deals will be other factors for the rise in the rupee's value, cited analysts. However, the upcoming US elections along with domestic macroeconomic inflation data might dampen sentiments.

"The policy outcome had a knee-jerk reaction on the USDINR spot and dropped close to the strong support zone of 73. With the optimism over the US fiscal stimulus deal, we expect a corrective leg towards 72.75 zones in the USDINR spot," said Rahul Gupta, Head of Research-Currency at Emkay Global Financial Services.

"However, the downside is limited as we head towards the US election and that there could be plenty of political uncertainties down the road. So for next week, we expect the USDINR spot to trade within 72.75-73.50 levels." Last Friday, the Reserve Bank made an expected move by retaining key lending rates, but cheered investors and home buyers by giving a liquidity boost and an optimistic outlook. The RBI said it will resort to on-tap long-term repo operations and open market bond purchases to ensure liquidity in the banking system.

It has also eased capital requirements on home loans to spur lending to the real estate sector. "The aggressive accommodative policy of the Central bank supported bond and rupee. The weakness in dollar index, stronger domestic equities and foreign fund inflows altogether backed rupee gains," said Devarsh Vakil - Deputy Head of Retail Research at HDFC Securities. "For next week US fiscal stimulus negotiations and opinion polls of the US presidential election will drive the currency markets. Spot USDINR is having resistance at 74 and support at 72.90 for the next week."