 "How will the Rupee fare against US Dollar?")
The Reserve Bank of India (RBI) with its newly minted governor, Rahuram Rajan, took steps to contain the rout which threatened to hit country’s current account deficit (CAD) and worsen the inflation problem. A number of steps were taken by the central bank such as boosting foreign exchange reserves, making it easy for banks to raise overseas funds, the depth of forex market was increased to aid operational ease for importers and exporters, steps were taken to boost domestic household savings as well.
The above measures helped to stabilise the USD-INR pair between 61-63 levels and it has been range-bound between 62.50-61.50 levels in the last one month.
More From This Section
Analysts now expect a break-out after months of consolidation. But with RBI’s measures already discounted in the current levels, what will drive the rupee?
Abhishek Goenka, Founder and CEO of India Forex sees rupee sliding to 63.50-64 levels in the short-term. "We expect a break on the upside towards 63.50-64.00 levels as there are factors which are pointing towards weakness in rupee in the near term – QE tapering by the Fed and political uncertainty ahead of elections in India," he says.
Latest minutes of the US Federal Reserve meeting in January signaled uncertainty over the interest rate regime. “The Committee continues to anticipate that will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent”.
January unemployment figure in US stood at 6.5 per cent meeting Fed’s target for a precursor to increase interest rates. “A few participants raised the possibility that it might be appropriate to increase the federal funds rate relatively soon,” revealed minutes of January Fed meeting.
This uncertainty could put pressure on emerging market currencies. It is to be noted that US tapering its quantitative easing in January caused a rout in the currencies of some emerging markets such as Turkey and South Africa.
“All major emerging currencies will come under severe pressure if the Fed decides reduce their monetary stimulus or if they decide to lift their interest rates up,” adds Goenka.
Counter View
However on the other side of the spectrum there are analysts who see rupee appreciating to even Rs. 60.80/$ levels by April.
“Time has come for the Rupee appreciation in March to the level of Rs. 61.30/$; a closing 62 mark will take INR to 60.80 maximum by next month (April)”
“A major Reason for INR appreciation would be the financial year end book closure which could see infusion of funds in equity to show profits in the books of account,” says Disha Bhatt-Founder, M/S Disha Bhatt.
She pointed out that global markets ended the month of December with gains on account of book closure in most developed markets.
Also, Inflation is easing and further rate hike is not expected so inflows may be seen in bond market next month if core inflation is below 8 per cent.
“A lower inflation combined owing to good monsoons with a gradual pick-up in GDP growth, a recovery in investment and stronger export growth on the back of improved global conditions will act as triggers for rupee going ahead,” she adds.
Geo-political fears
Rupee might come under pressure again if the stand-off between Ukraine and Russia escalates which will lead to a rise in global risk aversion and dollar strength. However, on the domestic side good FII inflows into India and the higher interest rate scenario will fend against any major sell-off, says Hemal Doshi, Chief currency strategist –Geojit Comtrade.
Technical View
“USD/INR currently is trading within a very narrow range of 61.80 - 62.50 and currently it is trading near to the lower end if the range. Price of 61.70/80 is very crucial as it is also the support of Symmetrical Traingle pattern. If prices takes support at current levels and reverses then a rally towards 62.50 and then 62.90 can be expected, whereas a breakdown of support level can open up more downside close to 60.80/90 levels,” Doshi added.