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Geopolitical tension arising out of West Asia has seen the global equity market rally come to a halt. Investors remain cautious on the road ahead given the rising tensions in Iraq and Ukraine.
Among commodities, prices of crude oil have hit a nine–month high. Closer home, the rupee breezed past the 60/US dollar mark in trade on Monday.
Here is what analysts think could be the road ahead for the Indian unit in this backdrop.
Anindya Banerjee, currency analyst, Kotak Securities
A cocktail of geopolitical risks, domestic monsoon worries and higher than expected wholesale inflation has pushed the Rupee towards a 7 week low of 60.24 levels against the US Dollar. A mix unwinding of shorts from large specs as well as hedging from importers has been responsible for the recent surge in the US Dollar.
Forward premium on the US Dollar has hardened on the back of tightness of liquidity in the money markets. Over the near term, we need to keep an eye on the situation in Ukraine and Iraq, as further escalation can lead to further spike in oil, which will be a near term negative for the Rupee.
However, the recent bout of deprecation is more of a counter-trend bounce within a medium-long term bullish trend for the Rupee. As a result, we expect exports to utilize the ongoing spike towards 60.80/61.20 to build hedges for the medium term
Debopam Chaudhuri, chief economist, ZyFin Research
The recent spike in crude oil prices has once again led to volatility in the Indian currency. However, we strongly feel that the rate will soon stabilise, with the September quarter averaging at 58.5. Indian foreign reserves have been improving quite steadily over the past few months, with year-on-year growth improving from as low as -6.5% in September 2013 to a robust 8.5% in May 2014.
Also, volatility in crude prices is largely being driven by sentiment. With the ISIS still far away from the major oil fields that account for 75% of Iraqi oil and US navy ships already training their guns in the Persian Gulf, we are hopeful this situation can be contained before these supplies are impacted. Incidentally, Iraq accounts for 4% of global supplies.
G. Chokkalingam, founder and managing director, Equinomics Research and Advisory
Spike in oil price would be curtailed soon as the Iraq issue will not emerge as a major global crisis. Both government and the RBI would prefer to keep exchange rate of rupee around 60 which is necessary to spur exports (which are stagnating) growth and also induce more inflows of foreign capital into the economy.
