 "Weak global macros to assert pressure on rupee: Experts")
Geo-political tensions, coupled with the depreciating Chinese currency and slow pace of domestic reforms, are expected to assert pressure on the rupee in the coming week, experts said on Saturday.
"The rupee value is expected to be under pressure due to weak global economic macros, especially the Chinese economic crises and the devaluation of yuan," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.
"Other factors such as weak domestic macros, coupled with slowdown in reforms will dent the Indian rupee further."
According to market observers, the rupee value is expected to be volatile. It is anticipated to hover around 66.50-67.20 to a US dollar in the coming week.
"The rupee looks weak with a key support of 66.45/50 and possibly trending towards 67.15/20. Worries over China's declining equities have pulled down global markets," Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.
However, the rupee could find support from increasing foreign funds inflows into the debt markets via central and the state governments bonds.
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Last year, RBI had decided to raise foreign investors' exposure limits in central government's securities to five per cent of the outstanding stock by March 2018.
In another key decision, the central bank had set a separate limit for investment by foreign funds in state development loans, which are to be increased in phases to reach two per cent of the outstanding stock by March 2018.
The RBI's decision is expected to usher in around $2.5 billion by this fiscal end.
"The anticipated foreign capital influx into the central and the state governments bonds should help keep the rupee on a stable footing," Banerjee elaborated.
"A proactive central bank should also limit extreme volatility in rupee value."
On a weekly basis, the rupee weakened by 50 paise to 66.64 (January 8) to a US dollar from its previous close of 66.14 to a greenback (January 1).
The National Securities Depository Limited (NSDL) figures showed that the FPIs were net buyers during the week ended January 8 2016. They bought Rs.981.6 crore or $145.15 million in equity and debt markets from January 4-8.
In contrast, the data with stock exchanges showed that the FPIs sold stocks worth Rs.3,550.74 crore in the week under review.
On technical levels, the rupee has corrected close to 50 percent. It has a critical support at 65.90 and resistance towards 67.10/15.
"We expect USD/INR spot to hold the downside of 65.90 and move up towards 67.10/15. A close above it can prompt a sharp up move towards 68.20 to 68.50," Hemal Doshi, chief currency strategist, Geofin Comtrade, told IANS.
"Close below 65.90 will change the trend from bullish to bearish."
Even the strong US jobs data which was released on Friday, can inflict a blow to the rupee value. As a strong jobs market in the US will improve chances of a future rate hike by the US Fed.
Another rate hike by the US Fed will lead away more FPIs from emerging markets such as India, denting the equity and currency markets.