The rupee is unlikely to rise above the 81 level against the US dollar and may trade in the range of 81.10-81.30 in the near term despite the positive cues in the domestic market, experts said.
This is because of global risks such as the surge in gold and crude oil prices, the widening trade deficit and the central bank’s intervention, experts added.
“The outlook turned positive for the rupee after a recent pause from the RBI, given the widening of the interest rate differentials. However, the surge in gold and crude oil prices, the widening trade deficit and the central bank’s intervention could limit the upside in the rupee,” said Dilip Parmar, Research Analyst, HDFC Securities.
“I expect it to trade in a broad range as positives on the domestic front are being offset by global risks of recession,” said Vikrant Sharma, Founder and Fund Manager of Kushak Capital Management.
Reserve Bank of India (RBI) Governor Shaktikanta Das during the April monetary policy said that the Rupee had moved in an orderly manner in calendar year 2022 and continues to do so in 2023 as well.
“This is reflective of the strength of domestic macroeconomic fundamentals and the resilience of the Indian economy to global spillovers. We remain watchful and focused on maintaining the stability of the Indian rupee,” Das said.
Further, dealers said that the focus will remain on inflows, which will decide the rupee trend in the near term.
As per NSDL data, foreign portfolio investors invested $1.07 billion in equities, but have still remained net sellers worth $2.13 billion so far this calendar year.
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Trading range
The possible range for the rupee could be 81.10 to 81.30, with 83.20 on the lower side and 80.90 on the higher side, forex dealers said.
Currently, the rupee is trading at 81.94, 10 paise down from its previous close.
“The range for rupee being 81.10 with an outside chance of 80.80 to 82.90 with an outside chance of 83.20,” said Sharma.
Since the RBI April monetary policy, the rupee has gained around 0.5 percent, and dealers expect it to gain further.
Before the policy, the rupee was trading at 82.33 against the US dollar, which on the policy day came down to 81.8850 at close on April 6.
The fall was witnessed after the central bank kept the repo rate unchanged after consistent hikes to tame inflation.
“I think the central bank will now move its focus from inflation and price stability to growth and employment. We expect the Fed to hike its rate by another 25 bps in the May 2-3 policy but commentary from their own will remain very crucial,” said Kunal Sodhani, Vice President at Shinhan Bank (Global Trading Center, FX and Rates Treasury).
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Outlook on forex reserves
Forex dealers expect India’s foreign exchange reserves will rise going forward and touch $600 billion in the coming months.
“We expect this (forex reserves) to rise towards $600 billion with time. The RBI also has been vigilant on volatility on exchange rates and actively intervenes in order to curb any kind of excess volatility that impacts the FX reserves,” Sodhani said.
In the last one month, India’s forex reserves have increased from $572.801 billion as on March 17 to $584.755 billion as on April 7, according to the RBI data.
Sodhani cited the data and said foreign currency assets (FCA), which make up a significant part of the FX reserves, climbed by $4.74 billion to $514.431, and were a major contributor to the overall rise in FX reserves as on April 7. Gold reserves also increased by $1.496 billion to $46.696 billion.
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