Experts believe that 69 per US dollar level could be maintained, while a fall below 71-72 per US dollar is unlikely on the currency
Even as the Indian rupee has shown strength recently, political developments and positioning by importers could impact the currency ahead, experts have told Moneycontrol. They believe that 69 per US dollar level could be maintained, while a fall below 71-72 per US dollar is unlikely on the currency.
The key issue of political trajectory will be eyed by traders in the upcoming sessions, especially December 11 when state elections result will be announced. The outcome of polls in five states will set the tone for general elections in 2019.
Elections are being held in five states of India viz. Rajasthan, Madhya Pradesh, Chhattisgarh, Mizoram and Telangana. The polls are significant from a political stability viewpoint at the Centre. The general elections for the country are lined up in 2019 and the outcome from these states could help investors gauge sentiment for 2019.
“If the Bharatiya Janata Party (BJP) loses Madhya Pradesh and Rajasthan (polls), then the market could start to price in political risk in 2019. In 2013, too, results of elections in three states were the launchpad for National Democratic Alliance (NDA) in 2014, which the market had priced in,” Anindya Banerjee, Deputy Vice President of Currency Derivatives at Kotak Securities told Moneycontrol.
The expert sees 69 per US dollar to be a big support level and it would be difficult for the Indian currency to appreciate any further.
Additionally, the uncertainty in global and domestic financial markets could weigh and impact positions by traders. “The market was heavily long and importers were well-covered, while exporters were under-hedged. Speculative positions have been culled and they (traders) are covering their long positions,” Banerjee explained.
Experts also believe that the RBI could use this window of strengthening rupee to address the issue of dip in reserves, which could have an impact too.
“The central bank had sold forex reserves sharply in the last couple of months when the rupee was under a huge pressure between August and October. Hence, this is a good opportunity for the RBI to cash in. Hence, over the medium term, once again, the rupee could move towards 72-73 levels and could see support around 69.5-mark,” Rushabh Maru, Research Analyst at Anand Rathi Shares and Stock Brokers said.
Furthermore, experts at ABans Group of companies believe that investors are now focusing on RBI meeting to discuss monetary policy. The question of increasing liquidity in the bond market after IL&FS fiasco is a bigger challenge, they said.
In the meeting held on October 5, RBI left the rate unchanged but the stance changed from ‘neutral’ to ‘calibrated tightening’.
“We expect that RBI will continue a similar approach in the December 5 meeting. Recent inflation data supports this move and the next bigger moves may come in the February 19 meeting, if the inflation picks up from here. The rupee is eyeing 200-day moving average (DMA) near 68.73 per US dollar in the near term as long as it continues to remain below 71.10 per US dollar,” Abhishek Bansal, Chairman of ABans Group of Companies said.
The currency has seen a sharp recovery from the lows it hit around October 10-11, 2018. It had touched an all-time intraday low of 74.49 per US dollar, while on a closing basis, it fell to 74.06 per US dollar.
However, a sharp 20 percent-plus cut in crude oil prices has had its effect on the rupee as well. It has appreciated a little over 5.5 percent between October 10, 2018 and November 29, 2018, up by over Rs 4.64.
“The rupee is firm on account of sharp decline in the crude oil prices in the international market. This is positive for India as decline in crude oil prices may push inflation and current account deficit lower,” Maru of Anand Rathi Shares and Stock Brokers added.
Emerging market currencies have gained against the US dollar as well. After mid-term polls, the results hint at impact on tax cut laws and faltering of US economic growth. US Fed Chair Jerome Powell also hinted the same recently.
Equities also received support in the last two weeks as trade war worries between US and China showed signs of cooling off. Both these nations are set to meet and discuss trade issues in the G-20 summit and there are hopes of a positive outcome of this meeting.“FOMC minutes also boosted positive sentiment, as the dollar index retraced back from its recent highs. After a continuous withdrawal of Rs 29,201 crore and Rs 9,468 crore in October and September, respectively, foreign investors were net buyers in the domestic market in November, which is a positive sign,” Bansal explained.