Dollar slips in to 2021 as investors ride downtrend

In a major positive development, the Drug Controller General of India has cleared the Covishield vaccine (developed by Oxford University and Astra Zeneca and manufactured by Serum Institute of India) and Covaxin (developed by Bharat Biotech) for emergency use authorization in India. The vaccine is likely to be rolled out in the next 7-10 days. 

In another encouraging development, GST collections for December came in at a record Rs 1.15 lakh crs. It is encouraging to see the collections holding up and rising steadily even post the festive season. The December trade deficit came in at USD 15.71bn, back to pre-COVID levels which indicates that domestic consumption has recovered well. 

The developments on the global front though have not been encouraging with the US continuing to record a surge in cases and deaths. The UK OM has hinted that stricter restrictions could be imposed. 

We expect the positive domestic data to prevail and keep the risk sentiment upbeat onshore. The Rupee has appreciated for six straight sessions and the Nifty has rallied for 7 straight sessions. We expect the momentum to continue. The RBI is likely to continue absorbing flows and the intensity of intervention would depend on how the broad Dollar behaves. Rupee is likely to trade in a 72.90-73.24 range. 

The major data to focus on this week would be the FOMC minutes late Wednesday and US December NFP data on Friday. Georgia Senate runoffs will also be closely tracked. The race is too close to call and if Democrats manage to win both, the president, House and Senate would all be Democrat which would be negative for the Dollar. If on the other hand, Republicans win even one runoff, they would retain control of the Senate. The Dollar could recoup some of it's recent losses in this case. 

Strategy: Exporters are advised to cover a part of their exposure on upticks to 73.80-73.90. Importers are advised to cover on dips to 73.40-73.50. The 3M range for USDINR is 73.00 – 75.40 and the 6M range is 73.00 – 76.00.

Download The Full Daily Currency Insight