Rupee may hit 70 mark this week
Indian Markets seems to be opening higher on monday after a mixed U.S. jobs report, with strong hiring and slowing wage increased.
Asian markets are trading higher this morning and oil prices edged up after ending on a mixed note Friday, while the dollar turned lower after the release of U.S. jobs data showing slower-than-expected wages growth in June.
News which affect Indian rupee
This week’s U.S. inflation data will be closely watched, while a Bank of Canada policy meeting and a first look at UK economic growth will also be in focus.
On Thursday, U.S. inflation data is expected to point to a 2.9% annual increase in the consumer price index, which could underpin the Federal Reserve’s case for a gradual pace of rate hikes this year.
The BoC is widely expected to hike interest rates by a quarter point following its meeting on Thursday, bringing rates to 1.5%, but heightened uncertainty over U.S. trade policy mean that the bank could still decide to hold fire.
The dollar slid lower against a currency basket on Friday after data showing that while the U.S. economy created more jobs than expected in June, wage growth rose at a slower than expected pace and the unemployment rate ticked higher.
The dollar had already come under pressure earlier in the day after the U.S. and China imposed tariffs on each other’s imports, escalating a trade spat that many investors fear will hit global growth.
Expectation for rupee
Continued strengthening of the US dollar, lack of foreign investment inflows and concerns over rising oil prices are likely to keep the rupee under pressure and push it down to the 70 mark this week. Bankers said that 69.30 remains a crucial level for the domestic currency, which if breached, could further plumb down to the 70 mark against the dollar.
The Reserve Bank of India (RBI), however, will not be comfortable with the currency touching 70 and would strongly defend the same, according to them.
The rupee had touched an all-time low of 69.10 against the dollar on June 28. It closed at a lifetime low 68.95 on Thursday and 68.87 on Friday.
"Concerns over widening current account deficit due to higher crude prices and demand for dollar from oil companies and general importers is impacting the rupee. It may briefly touch the 70 mark this week but would not remain there," said a senior bank official.
Those companies who have to repay their external commercial borrowing (ECB) debt are also stocking up the US currency, "The RBI won't allow the rupee to fall below 69.30. If it breaches this level, the rupee will touch the 70 level in no time,"
Analysts said trade war between China and the US is putting pressure on all the Asian currencies, but rupee is the worst hit so far.
"We think the RBI may issue NRI bonds to raise USD 30-35 billion to comfort the forex market, if FPI flows do not revive by the December quarter,"
Foreign portfolio inflows into the domestic equity market has also come down due to the worries over US-China trade war.
The rupee has depreciated 1.9 per cent since the RBI's June 6 repo rate hike, with $2 billion of FPI outflows
The brokerage said delay in FPI flows till, say December, may drive the rupee beyond 70 against the dollar and the RBI may issue NRI bonds.
If lack of FPI flows force the central bank to sell $20 billion, it would have to do open market operations (OMOs) worth USD 50 billion to contain lending rate hikes, the report had said.