Encouraged by the rise in US dollar index, the upmove in USD/INR has commenced with strong support at 72.80. Higher US yields have started to undermine the emerging market currencies and USD/INR followed the uptrend. The passage of a massive stimulus package as well as upbeat employment data sent the greenback higher globally. It seems for the rupee to quite possibly test the 73.50 level much sooner as all the internal and external factors encouraged such a quick downmove. US 10-year yield touched a 13 month high of 1.6250% on Friday and currently trading at 1.57% after Jerome Powell did not express concern about a recent sell-off in bonds and reiterated to keep interest rates low for a long time. Euro gained and touched 1.1832 level today, lowest since 23-11-20. Euro is also under pressure as an unexpected drop in German industrial production. The yen touched a fresh 9-month low of 109.23 today highest since 8-6-20. The safe-haven Swiss Franc softened to 0.9375/USD, its lowest level since late-July 2020. The increase in global oil prices, rise in US bond yields, and a significant rise in the US dollar pose a downside risk for the rupee. A test of 73.50 level is likely on the cards before the end of next week. It is very much clear now the rupee’s rise beyond the 72.80 level is unsustainable. It should be noted the higher oil prices would inflate the value of imports and widen the current account deficit to weaken the domestic currency over a period of time. Most of the Asian currencies fell today as the dollar is nearly at a 4-month high. Asian stocks are trading mixed today as climbing US bond yields pushed down the tech-related shares. MSCI’s broadest index of Asia-pacific shares outside Japan was 0.79% lower. From an all-time high of 52,516.76 on 16-2-21, the Sensex gradually drifted lower to trade currently at 50,875 with intermittent gains and losses in the Sensex. In the 1-month time period between 5-2-21 till 8-3-21, the BSE Sensex fell by 290 points on a closing level basis. This indicates the position of a slowdown in portfolio equity inflows in the referred period. As the forwards are still trading firmer upto 6-month maturities, exporters are advised to initiate hedges against medium-term receivables targeting a spot level of 73.30 and increase the hedge ratio in relation to the expected weakness in the rupee exchange rate. We are of the view that the spot rate may test the 73.60-80 level before the end of March 2021 and hence the exporters shall hedge their receivables in various tranches to obtain a better realization rate. Due to possible change in the rupee’s trend, importers have to revise their strategies to hedge at least 50% of their payables due for payment in the next 3 months period. After analyzing the various internal and external factors, we feel the change in currency trend is almost certain and the importers and exporters shall position themselves to hedge their exposures appropriately. However, RBI has accumulated a huge forward purchase position of over USD 50 billion and any currency weakness beyond the 74 levels would be protected by RBI by selling forward dollars to cap the rupee’s fall which would also help to bring down the forward dollar premia to align with the interest rate differential between the USD and INR for any chosen maturity up to 6 months.