Rupee presaged in a tight groove

OUTLOOK/CURRENCY

Global strengthening of dollar on the intervention by various central banks to keep their respective currencies slowed down the growth of rupee against the dollar last week.

Central banks around the world are depreciating their currencies to improve exports and fuel economic growth.

J P Morgan, in its yearly currency outlook, had said that the rupee-dollar exchange rate will dip by four per cent by September 2004, albeit worsening trade balances might favour the dollar.

According to G Srinivasan, senior dealer, Global Trust Bank, the rupee is expected to remain in a tight range of 45.40-50 as there are no fresh triggers for an appreciation with the equity market slowing down on profit taking. Also, foreign institutional investors are expected to take a cautious stand.

As per the latest weekly statistical supplement released by the Reserve Bank of India (RBI), foreign exchange reserves on a weekly variation have gone up by $1.72 billion to $1,03.82 billion.

Internationally, a fresh round of dollar strengthening will be favoured by some additional favourable data generating out of the US economy.

Dealers feel there will be heavy resistance for the rupee to breach the 45.25 mark on RBI's support. However, if it goes above 45.25, it could go up to 45.20 against the dollar.

Last week, though the rupee reached a low of 45.39, it reverted back to 4545/46 following the dollar gaining globally and corporate demand for the spot rupee.

Forwards may consolidate

The slide in the equity markets has raised concerns over foreign inflows. Dealers feel that for some time the rupee will be range-bound and forward premiums will see some consolidation.

This follows those who had bought at higher levels offloading positions to book profits. Exporters, not anticipating any rise in the spot rupee, might book their receivables.

This might put some pressure on forward dollars which are likely to come back to premium levels as against going into a discount.

In fact, for the last few months, month-end demand for cash dollars has been leading to forward dollar premiums being dealt at a discount.

Last week, forward premiums remained choppy with premiums gradually moving up to book forward dollars.

The week before, the forward dollar market witnessed paying interest on account of RBI's intervention were dollars are being sold in cash to be bought into the forward market.

Corporate demand for dollar is also expected to increase.

Dealers said this week inter-bank activity in the foreign exchange market will remain highly subdued and most of the demand and supply will be either corporate-oriented or inter-banks winding up of positions.