The rupee was last week seen touching the 84.18 level in the NDF market, which often works as a proxy to the currency. The local currency may even weaken to 84.20/25 against the dollar in the next few weeks amid volatility in the global currency market even as the possibility of a runaway depreciation to the 85 level looks remote at this juncture despite the dollar’s steady upmove, as the Reserve Bank of India would try to protect the currency using the reserves it accumulated, currency market experts said.
The strengthening of the dollar globally and the record outflow of it from the Indian equities have forced the rupee to be above 84 level for quite some time. Last Thursday, it touched a new low of 84.10 against the dollar.
Asean Currencies’ Weak Show
“Even as the RBI has been protecting the rupee, the resistance at 84.08 has broken and there is a bright chance of the spot rupee to taste 84.20/25 levels. The dollar index has also crossed 104 levels as the magnitudes of future US rate cuts are likely to be lower,” currency risk management advisor KN Dey said.
The local currency has come under pressure as portfolio rebalancing moves by foreign institutional investors has triggered a massive $11 billion outflow from Indian equities in October, breaking the earlier record of $7.9 billion seen in March 2020 in reaction to the outbreak of Covid in India.
Select Asean currencies have also underperformed in the past month, giving up much of the gains witnessed from August to the US Fed’s aggressive cut in the third quarter, DBS Bank senior economist Radhika Rao said.
“With an eye on the rupee’s performance on an effective exchange rate basis, we expect the authorities to keep the currency aligned with the regional peers,” she told ET.
A forex strategist with DBS Bank, however, viewed the greenback as overbought on near-term technicals. He is of the opinion that the US dollar index could reverse given the differences in the pre-election dynamics in 2016 against the current cycle as well as the softer US non-farm payroll numbers, even as the latter was influenced by oneoff disruptions.
RUPEE MAY EASE BY YR-END
“The rupee will not come under more pressure if Donald Trump is elected as the market is prepared this time unlike in 2016,” said Anindya Banerjee, Kotak Securities’ head of research for forex.
“We could see the dollar to peak around December globally and fall towards the end of the month. The rupee against dollar therefore is likely to ease around 84.0 level by the end of the year. The RBI has accumulated massive reserves at lower levels. It can now monetise it,” he said.
The central bank has curbed the intra-day volatility with regular interventions using the wellbuffered stock of forex reserves, which fell by $20 billion in a month from the all-time high of $704.885 billion.
“The volatility in the global currency markets will continue and may extend till January 2025 when the new US president takes over on January 20. Corporates with long-term dollar payables can take short hedge till January end to cover the volatility period and then take a call later whether to roll over or keep it open,” Dey said.