Re ranged amid volatile undertone

OUTLOOK: Currency

The spot rupee is expected to hover this week in the range of 44.30-70 amid a volatile undertone. Lack of formidable foreign exchange inflows is likely to support the rupee, feel dealers.

Globally, the greenback continues to gradually appreciate against key currencies such as the pound and euro. This equation seems to be slowly affecting the rupee.

While on the domestic front, things are fine in terms of economic fundamentals, the political scenario seems to be a major dampener.

With equities losing sheen following the exit poll forecast, foreign institutional investors are unlikely to pump in funds. Consequently, forex inflows will be muted.

Dollar will start gaining, dealers feel, given that most of the economic data emerging from the US is favourable. Even the recently released payroll data gave a positive indication. More data is expected this week, which will reinforce the sentiment of a recovery in the US, dealers said.

Foreign exchange reserves grew to $117.87 billion as on April 23 from $117. 592 billion as on April 16.

During the last few weeks, exporters have been booking receivables in the forward market at every level. However, last week, month-end demand also cropped up from corporate for making payments which destabilised the spot market.

However, bankers feel that with the rupee stabilising around 44.50, the panic reaction will come down and volatility to that extent will also reduce. Moreover, they feel this will lead to some covering of import payments in the near term.

Forwards to stay at a discount

Forward dollar is expected to recover back but not into the range of the premium. Discount on dollars to be booked for future is expected in a lesser range than the spot rate, which has been the phenomenon for the whole of last week.

This is because dealers expect exporters to stop panicking and avoid rushing in to book forward cover for their receivables, now that rupee is expected to stabilise around 44.30-40 levels. Moreover, with the month coming to a close, importers' rush for making payment will also ebb.

The scene has reversed only with the spot rupee being volatile, this time with sharp depreciation rather than depreciation. While action is concentrated in spot, cash dollar shortage in the forward market is impacting the forward dollars to slip into discount. The discount is further aggravated by exporters booking their receivables at very notch of dollar appreciation.

Sudden dollar demand surfaced once again last week for month-end payments and there were no cash dollars. Dealers feel the cash dollar shortage is likely to continue till the time banks are in receipt of dollar funds.

Exporters and corporates, which have dollar receivables either in the form of loans or receipts, have booked it for long period of six months to a year, without a corresponding hedge.

This apprehension of a cash dollar shortage is preventing forward dollars from commanding a premium and more often there are chances of forwards going into a discount.

However, this is likely to be checked by nationalised banks which, in earlier instances, used to aggressively intervene in the forward market to supply cash dollars. This is expected to happen over and above the importers' demand for dollars.