A stronger dollar and rising concerns regarding the Omicron variant have driven the USD/INR back above 75. Economists at Société Générale expect the pair to trade in a sideways range (75-77) through 2022.

FX volatility should remain well contained

“In the medium-term, we expect the trend weakness vs the dollar to persist, as market expectations for a Fed rate hike increasingly gain momentum. However, we expect the FX volatility to remain low, as RBI’s own policy normalisation should mitigate some FX risks.”

“Equity flows, IPO-related flows and a prospective bond index inclusion should all remain supportive of the currency.”

“We expect price action in INR to be range-bound next year (75-77).”