Rupee may stay in 45.20-45/$ groove

OUTLOOK: Government securities

The spot rupee is expected to hover in the range of 45.20-45 during the week. According to forex dealers, "While interest rates are high across the globe, political stability and good economic fundamentals backing high interest rates in India is attracting inflows from overseas. In the US, even though the interest rates are on an upswing, the case of economic recovery is questionable".

The recent data released on the GDP growth has been dollar bearish. This coupled with the rate hike by China has made most of the Asian currencies bullish over dollar.

The inflows into the Indian market are also fuelled by arbitrage opportunities in the southeast Asian non-deliverable forwards market (NDFs) and Indian forwards market.

Banks, on behalf of corporate clients, are understood to be buying forward dollars in the NDF market to invest in India. This is because one-year dollars are now available at 46.58 in the Indian forex market while the same is ruling at 46.40 in NDF market.

Most of the funds across the globe are seen liquidating dollar assets and buying into Asian countries. Dealers are of the view that the outcome of the US presidential elections will impact the dollar outlook.

"If John Kerry is elected, then there will dollar sales across the globe. This is because most of the developmental programmes lined up by Kerry will require huge fund outlay which in turn will push up the already-widening fiscal deficit," said a forex dealer with a foreign bank.

With the Chinese interest rates rising, fears on the inflation rate has been allayed a bit, said dealers. Foreign exchange dealers feel that with central bank intervention will also remain a crucial factor for the rupee movement. That will be noticeable if the spot rupee appreciates too sharply.

Premiums seen sliding

Forward premiums are expected to come down tracking the spot rupee . This is because both customers and banks are building positions expecting a dollar bearish market. Fearing further appreciation of the rupee, exporters will bring interbank their proceeds and book it for realisation.

Moreover the recent permission given to exporters to book 100 per cent of their proceeds in forward based on their past performance, will help in seeing more inflows in the market.

The interbank is also sitting short anticipating dollar inflows. Most of these deals involve selling dollars for buy back at a later date.

On the other hand, with the falling premiums on the forward dollars, dealers feel that the importers who have been sitting on the sidelines watching the rangebound movement of the dollar rupee and yet to decide will feel tempted to book at low lucrative levels.

But the market feels that the inflows will outstrip the inflows. Moreover, there will be month-end demand from the oil companies for making oil payments.