Bullishness on account of a stable US Fed's monetary policy, coupled with the unwinding of dollar positions, is expected to support the rupee value in the upcoming week, experts said on Saturday.
According to experts, the rupee value is expected to be stable around 65.50-66.45 to a US dollar in the coming week, as a result of US Fed's Federal Open Market Committee (FOMC) which decided to hike key interest rates by only 25 basis points.
The rise in the key interest rates was widely expected and factored-in. A higher rate hike would have led to a massive pull-back of foreign funds from emerging economies like India.
In addition, a dovish outlook by the US Fed, which said that it will maintain an accommodative stand and that the future rate hikes are likely to be gradual, soothed traders' nerves.
Moreover, US Fed's comments led some traders to even factor-in chances of more monetary easing by the the Reserve Bank of India (RBI).
As per Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, transitory factors like the unwinding of long-dollar positions after the FOMC is expected to support the rupee value.
"It is expected that the rupee strength will be supported by the unwinding of long-dollar positions after the US FOMC," Banerjee told IANS.
"The central bank is expected to maintain a strong and stable rupee to attract foreign investments. Rupee has been one of the best performing currencies in this year and the trend is likely to continue."
Furthermore, hopes of future dollar demand, as foreign investors will gain access to central and state governments' bonds from January onwards will keep rupee on a stable footing.
"Hopes of an influx of foreign funds into the central and state governments' bonds from January onwards will keep the rupee on a stable footing," Banerjee elaborated.
On September 29, the RBI had said that it intended to provide a more predictable regime for investment by foreign funds and decided to raise their exposure limits in phases in central government securities to 5 percent of the outstanding stock by March 2018.
In another key decision, the central bank had set a separate limit for investment by such funds in state development loans, which are to be increased in phases to reach 2 percent of the outstanding stock by March 2018.
The RBI's decision is expected to usher in around $2.5 billion by this fiscal end.
Besides, a gradual return of foreign investors to the equity and debt markets after relentless selling prior to the FOMC decision will be a positive factor for the rupee.
"An expected rate hike from the FOMC and a dovish tone from the US Fed stating that future rate hikes will depend on global scenario or if the US economic conditions persist helped buoy sentiments," Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.
"This might lead to the greater inflows as unlike last US Fed rate hike, when emerging markets were on a growth path. But this time we are seeing faltering economies. Though India is better placed."
Apart from global factors, a slow pace of domestic reform has led foreign portfolio investors (FPIs) to go in for a selling frenzy in the Indian equity markets since March, thereby negatively impacting rupee value.
On a weekly basis, the rupee strengthened by 49 paise at 66.40 (December 18) to a US dollar from its previous close of 66.89 (66.8850) to a greenback (December 11).
The National Securities Depository Limited (NSDL) figures showed that the FPIs were net buyers during the week ended December 18. They bought Rs.544.23 crore or $83.32 million in equity and debt markets from December 14-18.
The data with stock exchanges showed that the FPIs bought stocks worth only Rs.19.4 crore in the week ended December 18.
Nevertheless, the FPIs had taken out Rs.23,352 crore during the period August-September. In November alone, the foreign investors off-loaded stocks worth around Rs.9,000 crore.
On a technical level, rupee has got a healthy spot market support price at 66.30 to a US dollar.
"If it holds (66.30) then we can see spot moving up towards 66.80-85 or break and closing below 66.30. Then we can see a fresh selling coming which can take the spot lower towards 65.80-90," said Hemal Doshi, chief currency strategist, Geofin Comtrade.
