Rupee may fall to 82 vs USD amid hawkish central banks; wait for significant dip to buy USDINR pair: INTERVIEW

Indian rupee may further depreciate to 82 to a dollar in the near term due to strength in the US greenback, widening of trade deficit, and aggressive rate hike by the US Fed to tame record high inflation.

Rupee may fall to 82 vs USD amid hawkish central banks; wait for significant dip to buy USDINR pair: INTERVIEW
Rupee fell to fresh all-time lows following surging inflation across the globe, strength in the dollar against its major crosses and hawkish Federal Reserve policy statement.

Indian rupee may further depreciate to 82 to a dollar in the near term due to strength in the US greenback, widening of trade deficit, and aggressive rate hike by the US Fed to tame record high inflation. Central bank policies will be one of the important factors to watch out apart from the move in commodity prices to gauge rupee movement, said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services in an interview with Harshita Tyagi of FinancialExpress.com. RBI’s move to allow overseas investors to buy short-term corporate debt, opening of more government securities under fully accessible route and allowing international trade settlements in rupees could have a positive impact on the rupee in the long term but impact in the short term could be limited, Somaiya added.

The Rupee has been falling and hitting fresh all-time lows for a few days. What are the factors dragging the local currency down?

Rupee fell to fresh all-time lows following surging inflation across the globe, strength in the dollar against its major crosses and hawkish Federal Reserve policy statement. Dollar strength has also been led by extended weakness in the Euro on the back of ongoing energy crisis. Higher energy cost has led to an uptick in inflation and also pushed major central banks to raise rates aggressively. On the domestic front, inflation has been above the RBI’s comfort zone primarily led by higher energy prices. Trade deficit widened to a record $25.63 billion, pushed by a rise in crude oil and coal imports, from $9.61 billion a year ago. Total value of crude imports in June this year stood at $20.73bln as compared to $10.67bln in the same period last year.

Is further depreciation on cards? If so, can we see Rupee heading towards 81-82 soon?

Further strength in the dollar against its major crosses could weigh on the rupee but active intervention by the RBI is likely to curb sharp depreciation of the currency. The central bank took steps to boost foreign exchange inflows, including allowing overseas investors to buy short-term corporate debt and opening of more government securities under the fully accessible route.

What is the next crucial level in your mind and how much do you expect the rupee to depreciate in 3-month or by December?

In the next six months we expect the rupee to depreciate further following hawkish stance adopted by major central banks. Be it the Fed, BoE, ECB or the RBI all of them have raised rates in the recent past and inflation concern is likely to keep their stance hawkish. Central bank policies will be one of the important factors to watch out apart from the move in commodity prices. We expect the USDINR(Spot) pair to trade with a positive bias and quote in the range of 78.00 and 82.00.

The RBI has already taken several measures to tackle the fall in rupee value. How effective are these measures?

The central bank took steps to boost foreign exchange inflows, including allowing overseas investors to buy short-term corporate debt and opening of more government securities under the fully accessible route. The RBI put in place a mechanism for international trade settlements in rupees, which banks will need to seek prior approval to use. This could have a positive impact on the rupee in the long term but impact in the short term could be limited.

What is the ideal investor strategy for forex traders amid this consolidation?

With the RBI getting active to curb sharp depreciation of the rupee we suggest that traders could wait for a dip to come in the USDINR pair and to enter on the buying side. Short sellers should wait as there is less evidence for a reversal. Overall we would suggest that traders should wait for a significant dip to buy the USDINR pair.

(The recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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