The rupee rose sharply today touching a three-month high on the back of positive macro data as India’s third quarter current account deficit (CAD) fell below 1 percent, the lowest in 18 quarters. Capital inflows by some corporates remained strong and FII debt flows were also encouraging. According to most experts, for the full year, CAD would further narrow to USD 35-40 billion.
The key question for those betting on the currency would be will this macro cheer result in further gains for the rupee or will the upcoming elections limit the gains.
Jamal Mecklai of Mecklai Financial feels that it is hard to see the Indian currency strengthening significantly from hereon courtesy macro problems and weak fundamentals of the Indian economy. However, the rupee has reached a technically strong support level of 61.10/USD, and if it manages to break this level it may see some strengthening. He suggests buying dollars as of now.
Further, he warned that since FIIs are pumping money into short-term debt, so in the span of another three months chances are that these funds may flow out. He sees the rupee below 60/USD.
Himanshu Arora of Religare added that stability of the government would be the key cue that will determine rupee’s future course. But as of now, the positive trend seen in CAD is likely to continue for another quarter, so there is a case for the rupee to strengthen.
In the long-run, the broking firm expects the Indian currency to touch 65/USD by March 2015. Religare expects to see import growth revival going ahead and warns that the rupee is likely to be under pressure in near to medium-term.
Meanwhile, both the experts are wary about the formation of a stable government, a key concern that might push the dollar higher going ahead.
Also Read: CAD improves, but rupee seen in 61-65/USD band, say Analysts
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