HYDERABAD: Despite the Indian rupee gaining 1.6% in the last six trading sessions -- even cracking an intra-day high of 72 against the US dollar, experts see the trend to reverse and go back to 76-77 levels by the year-end.
After gaining for last four days, the momentum has already slowed down.
On Wednesday the rupee ended the four-session winning streak against the US dollar, closing 8 paise lower at 73.08, as sluggish domestic equities and a strengthening greenback overseas impacted on market confidence.
On Thursday, the rupee appreciated 6 paise to 73.02 in opening trade, and closed at 72.96.
A host of factors are influencing rupee, which is one of the badly-hit Asian currencies of late. Chief among them includes the US Federal reserve’s tapering of its bond-buying programme, followed by the Indian central bank’s plans towards policy normalization to drain excess liquidity.
A cross country comparison shows a better FPI (foreign portfolio investors) allocation in India and given the healthy foreign investor inflows, AT1 bond issuances, IPO-related inflows and rising FDI, the appreciation bias of rupee is evident.
Lastly, the rising Covid-19 cases among Asian economies and the Chinese crackdown on technology stocks too are all bearing down heavily on the rupee.
“The surprise, however, was on account of RBI’s hands off strategy, letting the rupee to be on stronger (and volatile) footing, outdoing gains seen in most Asian forex amid dollar index weakness. This is in contrast to July when most of Asian forex corrected on dollar strength. We note INR is the best performing emerging markets forex in Asia 3QCY21 so far, having returned 1.8%,” noted Madhavi Arora, Lead Economist, Emkay Global Financial Services.
Arora said, a part of RBI’s latest hands-off forex strategy could be to avoid letting the domestic liquidity conundrum convolute further, especially when they were lurching at huge forward maturity by August-end of $7.5 billion.
Experts are bearish in the short-term with the prospects of rupee going down to 73.50.
On a near-term basis, the domestic unit is likely to test 76-77 levels as a relatively strong greenback by year end with risks from fluctuating crude prices and Covid headwinds lending depreciation bias for the domestic currency.
The upward pressure may continue given the IPO line ups, and taper talks weighing less on global markets.
