The dollar index, which measures the unit against six other major currencies, rose by 4.5%. US Treasury bonds yielded 2.35% versus 1.8% about a month ago amid rate hike expectations.
US Federal Reserve chair Janet Yellen will meet in mid-December to take call on rate hikes.
MUMBAI: The rupee may plunge past records to a low of 70 a dollar by December as the dollar's global strength would continue to weigh on the local currency with domestic factors like a cash glut in the banking system dragging down the local unit, 16 traders polled by ET said.
Half the respondents believe the rupee will fall to a new record low in the range of 69-70 in a month's time. A week earlier, it touched a new low at 68.86 a dollar after more than three years. “Global dollar strength will weigh on all currencies,“ said Brijen Puri, managing director, JP Morgan (India). “With the FCNR (B) outflows behind us, the RBI would not mind the rupee depreciating in line with the other currencies against the dollar.“ “Currencies of our trade partners and competitors have fallen much more than the rupee, which is still over valued in REER terms,“ he said.The 36-currency basket Real Effective Exchange Rate for the rupee shows it overvalued by 6.45%.
Bank foreign currency non-resident deposits, raised in 2013 defending the ru pee from sharp slides ma tured in October-November leading to outflows of $24-25 billion from the country, a move that warranted dollar buying as banks had to repay depositors in dollars. In the past 3-4 weeks the dollar has gained strength as overseas investors exited emerging market investments to bet on US-backed securities amid the rising prospects of a rate hike in India.
The dollar index, which measures the unit against six other major currencies, rose by 4.5%. US Treasury bonds yielded 2.35% versus 1.8% about a month ago amid rate hike expectations.
US Federal Reserve chair Janet Yellen will meet in mid-December to take call on rate hikes.
“With US Fed policy coming up, the rupee will continue to remain volatile (amid fund outlfows),“ said Ashish Vaidya, head of forex trading at DBS India. “Markets will closely watch the Fed policy statement while taking cues from domestic factors like UP state elections and the union budget.“
“How RBI deals with the liquidity (excess cash in the banking system) too will help chart out the rupee's future move against the dollar,“ he said. The government's demonetisation move flooded the banking system with cash and banks have parked surplus money with the central bank crossing a record Rs 5 lakh crore a day . This gives the RBI additional muscle to intervene in the currency market to curb any sharp slide of the rupee. RBI's dollar selling can well be replenished by a banking system awash with cash. “The rupee, at most, will decline another 0.5% in December because a Fed hike is almost factored in,“ said Hitendra Dave, head global banking and markets at HSBC.“However, it may well rise towards 68 per dollar by March because imports are likely to crash due to the ongoing demonetisation.“
Inflows would start coming back to emerging markets from January on wards as investors make fresh allocations at the beginning of the year, said MS Gopikrishnan, head of FX at Standard Chartered Bank.
“From now to December, overseas fund outflows may continue to increase amid global uncertainties,“ he said.
In November, foreign portfolio investors sold Rs 31,918 crore worth of domestic equities and debt securities, the highest in the calendar year, show data from NSDL, a depository .More than half of it were bond sales.
But, there are contrarians too. “US economy cannot get out of the current situation on the back of a stronger dollar.Hence, the dollar index is likely to correct by 5-7% next few months,“ said Satyajit Kanjilal, founder of Forexserve, a currency consultancy firm.
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