Spot to stay grooved

OUTLOOK: Currency

The spot rupee is expected to move in the range of 45.85-95 to a dollar. The major triggers for the currency will be the oil prices and dollar movement in wake of the economic data to be released in the US.

According to Partha Mukherjee, treasury head, UTI Bank, "The rise in oil prices resulted in banks scurrying for dollars. This rush would continue till the time a clear signal emerges on the oil front. Given the positives and the negatives, the rupee is likely to move in a wide range of 46-46.25 to a dollar."

If crude prices continue to increase, the spot rupee might touch 46.20. In fact, the market has already priced in a 50 basis point rate hike. "Both the factors are putting pressure on the spot rupee," said Pawan Bajaj, head of foreign exchange, Bank of India.

The bias will be more towards appreciation owing to the inflation figure ranging at 7.80 per cent and gradual increase in inflows from corporates, exporters and portfolio investors.

Foreign exchange dealers feel the central bank's intervention will also be a crucial factor for the rupee.

That will be noticeable if the spot depreciates to the dollar. This again will happen if the dollar strengthens on the back of a robust US data.

Dollar movement holds key

The movement of the forward premium is contingent upon the dollar, which in turn, will depend on the oil prices and the to-be-released statistical data in the US.

Forward premiums will remain rangebound in all probability. However, if oil prices keep moving up, it will start rising owing to demand from oil and non-oil corporates for covering their future payments.

Moreover if the data from the US is robust it will indicate a stronger dollar. That will again push up premiums.

For the time being, RBI is not in the picture and most of the action is concentrated in near-term forwards. Dollar sales by corporates and exporters bringing in their receivables have been the major source of forex inflows.

Moreover, portfolio investors are also adding to the liquidity in the market. Therefore, even if oil demand crops up, there are enough inflows to take care of the demand.

Earlier, the strategy of the RBI to sell dollars and support rupee and in the process suck out the rupee liquidity has paid off in two ways, said a dealer.

"Firstly, the central bank was able to curtail the impact of excess liquidity on the inflation rate, which again was owing to the oil prices to a large extent. Secondly, the rupee dollar rate being supported below 46.50 has made capital outflows lesser on account of oil payments," he added.

However this time, oil companies are pro-actively taking forward cover and futures contract both for oil delivery and oil payments.