Chances of US rate hike to keep rupee on tenterhooks

Caution over the increased chances of a US interest rate hike is expected to keep the Indian rupee on tenterhooks during the upcoming week.

"Deciphering (Fed Chair) Janet Yellen's speech in the upcoming Jackson Hole Symposium for cues on Fed's assessment of US economic conditions and trajectory of Fed fund rates will be the investors' focus this week," Bansi Madhavani, analyst at India Ratings and Research, told IANS.

"Ahead of that, US housing and growth data will set the ground for the US dollar's trajectory. Mixed cues -- in terms of a weak US dollar and uptick in US treasury yields have kept global markets circumspect -- with emerging market currencies staying on the back-foot."

According to Madhavani, foreign portfolio flows' have continued to remain skewed towards the equity segment -- garnering a net $5.8 billion till now in 2016, while the debt segment has witnessed net outflows of $1.1 billion.

"Risk preference is likely to continue as the main driver of FX market and amid the caution, the rupee is likely to consolidate around existing levels," Madhavani added.

Earlier, the US FOMC (Federal Open Market Committee) had decided to maintain its key lending rates due to a weak domestic jobs market and bleak global economic outlook.

A hike in US interest rates can potentially lead FPIs (Foreign Portfolio Investors) away from emerging markets such as India.

According to Hiren Sharma, Senior Vice President and Head-Forex Advisory

at Anand Rathi Financial Services: "There have been FPI flows, but there have been parallel import payments or reserve build-up."

"USD/INR range of 66.60/50 to 67.12/20 is what we have been witnessing for quite sometime. The same is expected to stay. Further bearishness for rupee can be seen only if 67.20 is broken."

Despite healthy inflow of funds, the rupee depreciated last week. It weakened by 17 paise to 67.06 against a US dollar from its previous close of 66.89 to a greenback on August 13.

Lately, the influx of foreign funds has aided the equity and currency markets to recover from lower levels.

For last week, provisional figures from the stock exchanges showed a significant influx of foreign funds worth Rs 1,256.89 crore.

Figures from the National Securities Depository (NSDL) disclosed that FPIs were net buyers of equities worth Rs 2,874.23 crore, or $ 430.06 million, on August 16,18 and 19.

Sharma added that investors will keep a lookout for key announcement on the appointment of a new Reserve Bank of India Governor.

"After a month of oscillating between 66:60 and 67 on spot, dollar rupee finally broke out of the range," Anindya Banerjee, Associate Vice President for Currency Derivatives with Kotak Securities, told IANS.

"We have been flagging the risk of a bottom in USD below 66:80 levels as reserve demand from RBI was proving to be a difficult barrier for speculators to overcome."

Banerjee predicted that the Indian rupee can test the 67.30-40 levels in the very near-term.

(Rohit Vaid can be contacted at rohit.v@ians.in)

--IANS

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