A recent PTI report quoted bank officials saying that the rupee will continue to remain under the pressure of continued strengthening of the US dollar, a lack of foreign investment inflows and rising oil prices concerns, and the rupee could further dive to the 70-mark against the US dollar this week. However, currency experts differ in their opinion.
The recent plunge of the rupee to an all-time record low of 69.10 has sparked a fear of the domestic currency hitting 70-mark very soon. A recent PTI report quoted bank officials saying that the rupee will continue to remain under the pressure of continued strengthening of the US dollar, a lack of foreign investment inflows and rising oil prices concerns. The officials said that the rupee could further dive to the 70-mark against the US dollar this week if it breaches the crucial level of 69.30.
However, currency experts differ in their opinion and believe that it is not very likely that the rupee will breach 70 anytime this week. Even on Monday, the rupee strengthened by almost 39 paise to 68.48 against the US dollar, recovering from Friday’s closing low of 68.87, Bloomberg data showed.
We take a look at three key reasons why analysts believe it unlikely for the rupee to hit 70-mark during this week:
According to technical analysts, the dollar is not likely to strengthen much in the week ahead. “Looking at technical setup, it might be difficult for rupee to scale 70 this week. If we look at the dollar Index (DXY) on daily scale, since start of the last week, it is making lower top and lower bottom formation indicating loss of momentum on the upside. 95.20 levels seem to be strong resistance and is proving difficult for dollar index to break,” Bhavik Patel, Senior Technical Analyst, Tradebulls Securities, told FE Online.
“We reiterate our view that DXY will test support around 93.30-93 before we might see any bounce back. Inspite of weak DXY, we don’t foresee too much appreciation in INR. Support for INR will emerge around 68.50-68.30 before INR may start depreciating,” he added.
RBI has been constantly intervening since the rupee had touched an all-time low of 69.10 against the dollar on June 28. “The RBI has been intervening aggressively around 69.00 levels. Clearly, the RBI is not comfortable with the rupee moving below 69 levels. Even if the rupee manages to touch 70.00 levels, it may not sustain as the RBI will strongly defend the currency,” Rushabh Maru – Research Analyst , Anand Rathi Commodities, told FE Online.
Softer dollar, crude prices
A senior bank official cited concerns over widening current account deficit due to higher crude prices and demand for dollar from oil companies and general importers as impacting the rupee. “It may briefly touch the 70 mark this week but would not remain there,” PTI quoted the bank official as saying.
However, analysts expect dollar index and crude oil prices to soften in upcoming few sessions.“Both the dollar index and crude oil prices are likely to soften in next few trading sessions. This might offer respite to the rupee. We expect the rupee to consolidate in 68.40 and 69.00 range this week with the currency maintaining its depreciation bias,” said Rushabh Maru.
What lies ahead for the rupee?
Bhavik Patel adds that outflow of foreign funds, which is a key concern for the weakening of the rupee, is not just related to India but to all emerging markets. “Escalating trade tensions and macroeconomic concerns are the reasons behind net outflow of funds. Higher fuel prices increase inflation risk and widen the current account deficit, which puts pressure on the rupee. It increases import bill and hurting governments finance. Government expenditure is expected to increase since this is the election year, which stokes the fires of inflation and again is negative for the rupee,” Bhavik Patel of Tradebulls told FE Online.