Likely surge in bond yields along with rising COVID cases are expected to weaken the Indian rupee during the upcoming week.
Besides, persistently high energy costs could subdue the rupee bulls.
However, re-commencement of FIIs inflows will arrest any major fall in rupee's value vis-a-vis the US dollar.
"Rising trade deficit as well as concerns over US Fed's taper measures and rising yields can put pressure on rupee in coming year," said Sajal Gupta, Head, Forex and Rates at Edelweiss Securities.
"Crude oil too can play spoil sport if it moves towards the 85 levels. Omicoron concerns too may dampen the sentiment."
Last week, rupee was rangebound to close at 74.31 to a USD.
In that period, inflows from Reliance's US dollar bond issuance kept rupee tethered near 74.30 despite the surge in dollar index and higher crude oil prices.
"Next week, surging bond yields, fears of higher covid19 infections, high energy costs and RBI's intervention could spoil the party of rupee bulls," said Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities.
"We expect the rupee to trade between 74.20 to 74.90 next week with a weakening bias."
According to Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services: "Next week, on the domestic front, market participants will be keeping an eye on the inflation and industrial production number. An uptick in inflation could raise rate hike prospects by the RBI but at the same time a disappointing industrial production could dampen rate hike hope.
"From the US, focus will be on the Fed Chairman's testimony, inflation and retail sales number. A hawkish statement from the Fed Chairman and better-than-expected retail sales number could extend gains for the greenback."
The Central Statistics Office (CSO) is slated to release the macro-economic data points of IIP and CPI on January 12.
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