Rupee may fall to 83.50/$1 in September on global headwinds
Informist, Friday, Sep 8, 2023
By Richard Fargose
MUMBAI – The Indian rupee may hit a fresh all-time low of 83.50 a dollar this month due to prevailing global headwinds--mainly firm US dollar and rising crude oil prices.
According to an Informist poll, 10 out of 12 respondents expect the Indian unit to fall to 83.50 a dollar level this month.
The median of estimates of the Informist poll shows the Indian currency may end the month at 83.13 a dollar, 22 paise lower than the value seen in the poll on Sep 1.
The Indian currency came under pressure this week as the dollar index surged to a six-month-high following hawkish comments from Federal Reserve officials and a slew of upbeat US economic data.
The rupee settled at a record closing low of 83.21 against the dollar on Thursday.
At 2000 IST, the dollar index, which measures strength of the greenback against a basket of six major currencies, was at 104.75, up 1.9% so far this month.
"We will continue to see these short-term dips, but overall trend is upwards only (for dollar/rupees)," said a senior treasury official with a big state-owned bank.
"Current weakness (in rupee) is majorly due to global factors--rising oil, bond yields, and dollar strength--than domestic one. So, today’s trend can change if global factors remain unfavourable."
With crude oil prices surging 4.25% so far this month, oil marketing companies have stepped-up their dollar buys.
Crude oil prices reached their highest level since November after the world's largest exporter Saudi Arabia and second-largest exporter Russia extended their supply cuts till December this year.
A rise in oil prices increases India's import bill, which, in turn, weighs on the domestic currency.
At 1728 IST, the November contract of Brent crude oil on the Intercontinental Exchange was at $90.57 a barrel as against $89.92 a bbl on Thursday. It was at $86.83 a bbl on Aug 31.
The rupee is also seen tracking a fall in the offshore yuan on the back of weak economic data from China, analysts said.
"I don't think rupee will be an outlier, it will fall in line with other Asian currencies..... I am not very bearish on the rupee but if we move towards a recessionary state in the early part of next year, obviously the world will prefer the dollar," said Madhavi Arora, chief economist, Emkay Global Financial Services.
Market participants expect the central bank will continue to provide a cushion to the domestic currency through its dollar sales, and curb runaway depreciation of the unit.
According to market participants, the central bank is estimated to have sold around $5 bln this week to support the rupee. The RBI intervention helped the Indian currency to settle above psychological level 83 a dollar today.
"I think the resistance of 83.25-83.30 band thing is going to be significant, if it breaches then another 25 to 45 paise higher," said V. Lakshmanan, head of treasury at Federal Bank.
