Higher oil prices, low IIP may hurt rupee appreciation next week

The rupee is expected to be in appreciation mode next week, too, provided oil prices do not rise further and industrial production data for January show improvement. “We expect the rupee to trade between Rs 44.90 and Rs 45.00 against the dollar. Oil prices are already high but if they move up further, the rupee will come under more pressure,” said Ramanathan K, chief investment officer, ING Investments.

The Indian currency closed at Rs 44.98 against the dollar after trading at Rs 44.91-45.03 on Friday. The rupee closed with a gain of 0.74 per cent for the week ended March 4 as compared to Rs 45.33 in the earlier week.

A falling dollar against its global peers may support rupee appreciation next week but the gain will be limited if rising oil prices spark a dollar purchase. The industrial production data for January is due to be announced on March 11, while weekly food inflation data will be out on March 10. “A desired combination of better IIP and lower food inflation will help the rupee,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

Another factor that may work in favour of the rupee is the mid-March advance tax payments that will worsen the prevailing liquidity crunch and raise demand for the rupee.