The Indian Rupee opened marginally higher on Friday at 68.70 after hitting a fresh record low of Rs 69.09 yesterday. Notably, various factors including crude oil prices and the onslaught of US Dollar along with a weakening Yuan have put pressure on the Rupee. The currency hit its weakest level ever of 69.0925 per dollar on Thursday, lower than its previous record from November 2016, amid a pick up in oil prices and a sell-off in developing-market assets. Analysts are predicting more pain, with Barclays Plc forecasting the rupee at 72 to a dollar by year-end while DBS Bank Ltd. sees 71 by next June, given India’s sensitivity to oil prices and their impact on the nation’s trade and current-account deficits, according to a Bloomberg report.
“After touching an all-time low of 69.08 yesterday, the Rupee is expected to open better today (NDF at 68.65) – compared to yesterday’s close of 68.79. Primarily due to Dollar receding a bit, and Crude remaining flat (Brent is at $77.34 per barrel),” Hiren Sharma, Founder and Managing Partner at Portia Advisory Services LLP told FE Online in a note. According to the expert, contrary to U.S. putting up trade frictions, its rival China is trying to open up its economy further and also importantly removing/reducing tariffs on its other trade partner products (like it has lowered and even removed tariffs on certain Indian products).
“This is primarily to gain over and assure the Non-US trade partners. It has also eased restrictions on Foreign investments in China,” he explained. Taking stock of various other macro factors, Sharma notes that On the U.S. GDP Q1 did not come out as expected (actual 2.0%, forecast & prior 2.2%). This led to lowering of Dollar index – which is now sub-95 level (at 94.96), he noted.
India 10-year bond yields have risen again towards 7.94%, reflecting trade & current account woes, as both Crude & Dollar are on rising curve. “This should technically lead to a rise in inflation, influencing RBI to go for more interest rate hikes – a step that can widen the interest rate differential between U.S. and India, thereby stimulating a probable FPI flows in Indian debt (again),” Hiren Sharma said adding that such a situation can better the Rupee prospects, which is presently reeling under the onslaught of Dollar and Crude rise.