The rupee may weaken further against the dollar this week amid dollar demand by importers. Strong demand from importers coupled with weak equity markets led the rupee to close at 2 –month low levels against the dollar on Friday at Rs 55.18 as the Reserve Bank of India (RBI) did not seem to have intervened to arrest the weakening rupee.
“There is a lot of dollar demand due to import of oil, gold and defense equipment. The Euro is also volatile due to persisting concerns in the Eurozone. These factors will keep the rupee weak against the dollar,” said S Srinivasaraghavan, executive vice president and head- treasury of Dhanlaxmi Bank.
The rupee is also getting impacted due to weak domestic cues. “Rupee is now seen as the worst performing currency driven by weak domestic cues. There are no signs of early resolution to issues concerning growth, fiscal deficit, trade/current account deficit, inflation, investments, consumption, supply side bottlenecks etc,” said J Moses Harding, head – asset liability committee and economic and market research, IndusInd Bank. According to Harding the rupee also lost traction with gains in the Euro while weak Euro weighs heavy on the rupee. “The expectation now is that either resolutions to weak macroeconomic fundamentals will either be delayed or denied,” said Harding.
According to Srinivasaraghavan the rupee is expected to trade in the range of Rs 54.75-55.50 this week. The winter session of Parliament starts from Thursday. However this may not have much impact on the forex market, said Srinivasaraghavan. “The Finance Minister P Chidambaram will maintain in the session that fiscal deficit will be restricted to 5.3 per cent of the Gross Domestic Product (GDP) in the current financial year,” said Srinivasaraghavan.
Gilt yields on the other had are expected to remain range-bound this week. “There are expectations of Open Market Operations (OMOs) purchase auction of gilts. If that happens then the yield on the 10-year benchmark gilt .15 per cent 2022 may drop to 8.16-8.17 per cent. The trading range this week for the 10-year benchmark gilt will be 8.15-8.19 per cent,” said Srinivasaraghavan.