Rupee may fall to 81 against US dollar amid widening trade deficit, risk-off sentiments and FII outflows

The Indian Rupee depreciated further on Tuesday to breach the psychological mark of 80 for the first time ever. Amid tightening monetary conditions and risk-off sentiments as well as persistent outflows witnessed from the domestic markets, the local unit fell to fresh lifetime low of 80.05.

Rupee may fall to 81 against US dollar amid widening trade deficit, risk-off sentiments and FII outflows
has declined by about 25 per cent since December 31, 2014, and is nearing 80 against the greenback

The Indian Rupee depreciated further on Tuesday to breach the psychological mark of 80 for the first time ever. Amid tightening monetary conditions and risk-off sentiments as well as persistent outflows witnessed from the domestic markets, the local unit fell to fresh lifetime low of 80.05 against the US dollar in early trade, down 7 paise from the previous close. Significant dollar demand from oil importers amid elevated crude oil prices as well as concerns about swelling trade deficit have also been the key catalysts behind the steep descent seen in the rupee. The domestic currency has declined by about 25 per cent since December 31, 2014, and is nearing 80 against the greenback. 

Strength in dollar ahead of FOMC policy statement pulls Rupee down

“Rupee fell as broader strengthening in the dollar continued ahead of the important FOMC policy statement that will be released next week. Expectation is that the Fed could raise rates by another 75bps and maintain a hawkish stance. On the domestic front, the trade deficit continued to widen and that also is weighing on the rupee. We expect the USDINR (Spot) to trade with a positive bias and quote in the range of 79.70 and 80.20,” said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

Rupee may slide further to 81 to 81.5 levels

Punit Patni, Equity Research Analyst, Swastika Investmart Ltd said, “The rupee is expected to further slide due to the current severe rate hike by the US Fed, relentless selling by foreign investors, and the rising demand for the USD due to its safe haven status. Nevertheless, the RBI is aware of the falling rupee quagmire and could take actions to curb the further depreciation, thus we expect further downside to 81 to 81.5 levels.”

Rupee-dollar exchange rate expected to hover in 78.50-81.00 band till September

“We do see some more pain for the domestic currency in the near term, but it is likely to remain cushioned by the 81 mark amid a host of factors. For one, the strength in the dollar index seems unsustainable at higher levels, with expectations that the European Central Bank and other developed market central banks will also hike interest rates aggressively. The long-term inflation expectations have fallen in the US, and concerns of super-sized tightening by the US Fed at the forthcoming meeting have eased, which is leading to a retreat in the dollar index from multi-year highs and aiding the local unit,” said Sugandha Sachdeva, Vice President – Commodity and Currency Research, Religare Broking.

She further added, “Besides, the US central bank might be forced to pause its rate hike cycle going forward given the concerns about recessionary risks and it seems that the worst is likely to be over soon. Secondly, the RBI and the government have recently taken several measures which might stem the fall in the rupee. The rupee-dollar exchange rate is expected to hover in the 78.50 to 81 band till September.”

Future Dollar expenses are deemed to become more expensive

According to Raj Gandhi, Co-founder, DollarBull, with the Indian Rupee depreciating over 7% against the US Dollar this year, There is an urgent need to offset the effects of a depreciating rupee and that can be achieved by investing in global markets. The cost of financial goals to be realised in the US has exponentially increased. 

“A combination of both increases the burden on aspirational Indian investors who are aiming to send their children abroad for higher education and make remittances for their living costs and other expenses and eat into one’s savings if they are only invested in Domestic markets. Future Dollar expenses are deemed to become more expensive, which is why Indian investors must begin by parking a percentage of their portfolio in the Dollar via US ETFs and Stocks,” Gandhi said.

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