With crude oil prices rising and capital inflows slowing, the rupee is likely to touch 44 against the dollar in two or three months, say experts. The latest data showed that the country?s trade deficit widened in May to a record $10.77 billion as the pace of export growth decelerated and oil import costs surged.
On Tuesday, the rupee had touched a 15-month low of 43.47 levels against the dollar. But on Wednesday the domestic currency showed some signs of strengthening as the equity market recouped over 5% from the previous day?s loss. The rupee ended at 43.16 against the dollar as compared to 43.33 on Tuesday.
Experts say they are bearish on the rupee as the crude price scenario and the stock market slide are set to continue. ?The sentiment on rupee looks very negative as high oil prices and low capital inflows will continue. We expect the rupee to touch 43.6 or even 44 levels against the dollar in the next 2-3 months,? said V Rajagopal, chief dealer at Kotak Mahindra Bank.
Dealers say heavy dollar buying in the non-deliverable offshore forwards market (NDF) is also leading to rupee weakening.
The evening session showed that the one-month offshore non-deliverable forward contracts were at 43.62/72 per dollar, weaker than the onshore rate.
With a continuous fall in the rupee, exporters will chip in to sell heavily, said dealers. ?We are now targeting the rupee to touch 44 against the dollar provided there is no intervention by the central bank,? said another dealer at a foreign bank.
So far in 2008, foreigners have sold $6.5 billion worth of Indian stocks which pushed the rupee nearly 9% down. In 2007, they had bought $17.4 billion, helping the index climb 47% and the rupee rise more than 12%.
On Wednesday, oil was trading near $141 a barrel. It had hit a record $143.67 on Monday. ?Apart from high oil prices, widening trade deficit is putting pressure on the local currency. The rupee will continue to remain weak as the fiscal deficit widens,? said Rugved Dhumale, senior manager of risk management solutions at Mecklai Financial and Commercial Services.
He expects rupee to touch 43.50 in the near term as the import bill for India will be on an escalating spree.