Rupee likely to trade in 83.50-84.40 range against dollar for next few weeks

Indian Rupee

The rupee is expected to trade in the 83.50-84.40 range against the US dollar over the next few weeks due to foreign fund flows and carry trade-related adjustments, forex dealers have said.

“The expected range for the USDINR pair is 83.60-84.40. The NDF (non-deliverable forwards) traded highs of 84.14 will act as a first important resistance,” said Kunal Sodhani, Vice President, Shinhan Bank.

Foreign fund flows and carry trade-related adjustments will impact the short-term direction of the rupee, Dilip Parmar, who is a research analyst at HDFC Securities, said.  “The overall direction of the rupee is likely to be decided by the central bank's policy decision and the quantum of its intervention.”

The Reserve Bank of India will come with its policy decision on August 8 and is expected to hold rates steady for the eighth time.

In the last few days, the rupee sank to record lows due to fund outflows from the market, uncertainty after the rate hike by Japan, weakening Chinese yuan and the worsening of the West Asia crisis.

" The Geopolitical situation needs to be closely watched in the next few months. The dollar rate cut and yen level are also to be seen. If the yen keeps strengthening then we could see the rupee lower towards 85, though RBI has good enough reserves to keep the rupee under control," Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP, said.

On August 6, the rupee slumped to an all-time low of 83.9575 against the dollar but opened higher on August 7.

At 1.36 pm, the rupee was trading at around 83.9525 to the dollar.

Navneet Damani, senior group vice president, commodity & currency research, Motilal Oswal said the rupee’s fall this week was primarily due to the meltdown in global markets and accelerated unwinding of yen carry trade.

Faster interest rate cuts from the US Federal Reserve could make matters worse for the “global carry trade” unwind, he said.

Foreign investors always look for opportunities to make money. One way to do this is to borrow money in a country where the interest rates are low and invest that money (after converting the currency) in a country where the interest rates are much higher and that is carry trade.

In India, too, the key stock gauges sank almost 3 percent. FIIs net sold stock worth $1.5billion, piling pressure on the rupee.

Uncertainty on the global front more than domestic factors led to the selloff, Damani said.

The US Federal Reserve’s interest trajectory and carry trade will be the factors to watch in the coming days, forex experts said.

The US central bank while sharing the policy decision on July 31 hinted at a rate cut in September. A weaker-than-expected job data for July fanned fears of a US recession, spooking markets across the globe. It also fuelled speculation of a bigger than expected cut by the Fed.