Rupee to stay grooved

OUTLOOK/ CURRENCY

The spot rupee is expected to hover this week in the range of 45.00-45.40. Players expect the Reserve Bank of India (RBI) to support the rupee at 45.

The RBI as a policy stance had intervened the week before last for selling dollars to pull up the rupee so as to cushion the effect of a oil price hike globally on the inflation rate.

Although markets will remain volatile with two-way movements, the bias remains towards a depreciation as dollar has been gaining continuously to other currencies such as euro and pound sterling.

The bearish outlook on rupee has been stirred by the fear of a selloff spree by foreign institutional investors (FIIs) as forex inflows are not adequate as they used to be few months back.

FIIs are understood to have been liquidating their positions and playing it safe till the budget. The Union budget remains the next trigger for getting a clarity of the government's stance on important policy matters.

Even if the Fed rate is unchanged, the hardening of interest rates have been factored in the bond yields in the US market. The 10-year bond yield has gone up from 3.60/70 per cent last year to 4.60 per cent this year.

Foreign exchange inflows fell in absolute terms last week. The foreign exchange reserves as on June 4 declined $142 million in a week to $119.678 billion against $119.82 billion last week.

Importers' rush may push up forwards

Premium on forward dollars is likely to go up as importers are expected to cover their open positions on fears of a depreciation in rupee following the trend of global appreciation in the dollar.

Buy-sell swaps are putting pressure on the rupee to depreciate. One section of the market believes that in order to check the impact of oil price hike on inflation, rupee appreciation is likely to continue for sometime this week till the oil payments are not over.

Most of the importers, during the last spree of the spot dollar appreciation, could not cover in anticipation of further appreciation. This will keep the forward dollars in premium.

In fact premium on dollars are likely to deepen as banks are stocking up dollars to remain liquid.

Cash dollar shortage seems to be away for sometime and the dollar was made available initially by RBI through sell-buy swaps. This strategy of the market players again will avert forward dollars going into discount as availability of cash dollars has been ensured.

The scene has reversed only with the spot rupee being volatile, this time with sharp depreciation rather than appreciation.