War Clouds Over Spot, Premiums

The rupee is likely to be traded in the 47.90-48.20 range against the dollar this week and forward premiums are likely to soften. Foreign exchange dealers expect the one-year forward dollar premium around 5.25 per cent, down from the six per cent level of the previous week.

Dealers said that this range would hold true only if the situation is normal and the war does not break out in Afghanistan.

"The uncertainty over the possible US attack on Afghanistan continues and if the war actually breaks out, the rupee may test new lows. Otherwise, the rupee would move in the 47.90-48.20 range and this band may hold true for the full month," says IndusInd Bank senior vice-president and head of treasury Sharukh Wadia.

A dealer from a foreign bank pointed out that if the rupee strengthens at around 47.85/90 level against the dollar, the Reserve Bank of India (RBI) may start buying dollars at those levels. The RBI had earlier made it clear that it would sell dollars to bring in stability in the market.

Most of the forex dealers feel that the RBI announcement has lent a cushion to the market and the rupee will not plunge against the greenback even if war breaks out.

"There could be a slight rise on Tuesday as the US markets are closed on Monday. The 48.05 level is a good resistance level. If the rupee breaches this level in the event of any attack, then there could be a sharp fall of 15-20 paise," says another dealer. Forward premiums are expected to slightly ease on the expectations of a bank rate cut.

The exporters are still following a wait and watch policy. "Though they have bought part of the funds parked abroad which has eased the pressure on the rupee, some of them are still watching the situation," said one banker.

The importers, on the other hand, are not rushing for cover which they were doing about a fortnight ago. But they will rush for cover if the war actually breaks off. "Only around 40 per cent of the importers seem to have covered their position. In case there is a fresh bout of uncertainty triggered by the war, the rupee will come under fresh pressure as the importers will rush for cover," pointed out a senior banker.