The rupee is likely to trade in a range of 47.95-48.05 against the dollar this week. Dollar buying by the Reserve Bank of India (RBI) will set the trend, while the other major factor which will have a bearing on the rupee is the oil price.
The RBI has been continuously mopping up greenbacks. According to foreign exchange dealers, the central bank was continuously in the market last week.
The rupee traded in a range of 47.96-48.04 per dollar last week. Some month-end demand was noticed during the session. Corporates and banks were seen selling dollars in the Rs 48.03/dollar range even as public sector banks were buying greenbacks on behalf of the RBI.
The RBI might have mopped up around $500 million through the public sector banks last week too. The inflow of dollars is likely to continue this week too and the dealers expect the RBI to keep a close tap on the currency.
If the inflows in the market continues to be in the same way as was seen for the last few weeks, the rupee is likely to appreciate and touch the 47.90 level. However, the appreciation is likely to be gradual as the RBI will not allow any steep rise.
A section of the dealers, however, feels that there could be tightness on the supply side as supply sources seem to be getting exhausted. There has also been steady demand for dollars from importers.
On the international front, oil prices are already on highs on the back of tensions in the Middle East. However, as no major action is expected by the US before January end, the market seems to have discounted this factor unless the oil prices show an unusual climb-up.
The start of the calendar year could also see fresh allocations made by the FIIs in the stock market.
Software companies are also bringing in their remittances fast fearing that if the hold back the proceeds, they may end up on the losing side if the rupee continues to appreciate against the dollar.
Premiums Forward premiums are likely to hover around the current range this week too. The six-month annualised premium is likely to hover in the range of 3.30-3.65 per cent, while the one-year premium will be in a range of 3.25 per cent. However, this will also depend on the open market operations of the RBI.
The tightness in liquidity seen in the market seems to have eased if one looks at the repo bids. Importers are also not hedging as they are not expecting any weakness in the rupee. There is also no paying registered. And the premiums on the forward dollar are being guided by the yields on government securities.
The premiums could harden up a bit if the RBI comes up with an OMO this week to drain out excess liquidity from the banking system.
