Battered rupee may hover around 76 against US dollar

The Indian rupee, which has seen a major fall in the last one week, is likely to witness downward trend in the next few days and could test the level of 76 mark against the US dollar, according to a DH poll of analysts tracking the currency markets.

The rupee ended at 75.05 on Monday thereby witnessing a nine-month low against the US dollar.

All of the 11 analysts polled by DH feel that the rupee will continue to depreciate further. On an average, they feel that the rupee would range between 74 and 76 during the next quarter.

According to experts, it all started with the liquidity measures announced by the Reserve Bank of India during its latest monetary policy. “The proposed infusion of Rs 1 lakh crore liquidity, rising dollar index, expected slowdown in economic activities arising from a fresh wave of the infections led to a sharp depreciation of the rupee,” says Devarsh Vakil, Deputy Head of Retail Research, HDFC securities.

Kaynat Chainwala, fundamental research analyst, currencies at Anand Rathi Shares and Stock Brokers is of the opinion that apart from the bond buying programme, the rise in coronavirus cases is also a factor that is causing a fall in the rupee.

“Already, the domestic currency has been battered by 2% since the RBI unexpectedly announced QE style G-sec acquisition programme (G-SAP) last week with the first auction aggregating Rs 25,000 crore to be held on April 15, 2021,” says Chainwala. “This week, the Rupee is likely to weaken further as investors cautiously await India’s industrial output, manufacturing output, trade balance and inflation figures coupled with the first G-SAP auction scheduled on Thursday,” he added.

Read | Markets likely to track global cues along with weakening rupee

Sriram Iyer from Reliance Securities has noted that a Dollar short-covering was witnessed which pushed the currency higher. Iyer estimates the rupee to depreciate to the level of 77 to a dollar this year.

Chief Economist at CARE Ratings Madan Sabnavis feels that apart from the pandemic and the RBI’s policy, external factors such as the dollar’s relation with the Euro and overall balance of payments could affect the movement of the rupee.

“Main reason for fall is the spread of virus and the RBI policy indicating soft interest rates. This has led to expectation that there will be less FI flows as interest rates in India will be lower than the West and there will be a flowback of funds. Also, the dollar has been getting stronger which is pushing down most currencies,” Sabnavis said.

Analysts state that the US Federal Reserve’s stance could impact the position of the rupee. “So far dollar index has been impacting the rupee. In addition to that, going forward what stance the Fed takes will also impact the position of the rupee,” says Gaurang Somaiyaa, Forex and Bullion Analyst, Motilal Oswal Financial Services.

Anindya Banerjee, DVP-Currency Derivatives & interest rate Derivatives, Kotak Securities feels that due to the high interest rate differential and low volatility, there has been a significant amount of carry trade in Rupee which has caused the weakening of the rupee. “In a carry trade, traders sell the low interest-bearing currency, USD, and buy the high interest-bearing currency, Rupee. That carry trade is being unwound as Covid cases are rising and globally dollar has strengthened,” says Banerjee.

Vishal Balabhadruni, Senior Research Analyst, CapitalVia Global Research Limited feels that if the dollar deficit comes down, then the rupee will become strong. He is of the opinion that the rupee could touch 75.20.