This is what will be positive for rupee

We have a handful of issues to consider which can always impact various asset markets including currency exchange. When talking about India, we can’t forget about “monsoon” and its impacts as well.

The US-China trade saga is still unfolding. This is surely going to impact global trade as both the countries are very large players. As an aftermath of this ongoing tussle, the Chinese currency (CNY) has depreciated by 8.39% in a matter of a few months (i.e. the official CNY fix has moved from 6.2771 on April 17, 2018, to 6.8040 on July 25, 2018). Apart from this, the US president also has threatened to bring in more goods under review unless China stops “infringing” on US trademarks etc. Donald Trump has also threatened to bring in special tariffs for imports from EU, which would adversely impact Auto exports from EU. I can safely say that there is a lot of “posturing” involved in this but actions speak louder than words.

Dollar thus has been hovering broadly between 94-95 for quite some time now. Technically speaking, one can look forward to selling dollar as and when the index starts moving higher. Consequently, the Euro which was under tremendous downward pressure has bottomed out and a breach below 1.1570 (against the dollar) looks very unlikely. Hence one may consider buying Euro around 1.1600 areas against the US dollar. The GBP has started recovering from fall below 1.3000 against US dollar recently. However, going by the trend and given the complexity of the negotiation of “Brexit”, it’s unlikely that GBP-USD will have any definite breakout on the upper side.

The Indian rupee had come under tremendous pressure this fiscal owing to many factors. Rally in the global crude prices, significant capital outflows in the last three months (around $8.8 bn), ongoing trade spat between the US and China affecting general trend in funds flows to emerging markets, competitive devaluation of Chinese Yuan and winding down of QE by major central banks affecting availability of cheap funds had significant impact. This had led to a situation where India reported a higher jump in monthly trade deficit recently.

It is now expected that India will run a BOP deficit of around $ 20.00 billion or so in this financial year, given the matrix mentioned above. It’s also pertinent to note here that, the rupee has depreciated more or less with the trend reversal in other emerging market currencies. As a result, the home currency broke through the last high against the dollar and touched a lifetime level of 69.1300 on July 20, 2018.

Watch this Zee Business video here:

However, there has been a let up in global oil prices as well as the dollar index has also moved a bit lower. This will be rupee positive. Hence, I am expecting a range trade scenario in a dollar-rupee pair in the coming days/weeks where the pair might remain between 68.4000-69.1000 range. In India, inflation is also rearing its head and may become stickier going forward. Fearing this stickiness MPC had raised rates by 25 bps in their last meeting and general market expectation is now another 25 bps hike in October meeting.

By Bhaskar Panda
(The writer is senior regional head, Treasury Advisory Group, HDFC Bank)
Source: DNA