US rate hike rhetoric to further weaken Indian rupee (Rupee Outlook)

The heightened chances of a US rate and massive flight of foreign funds from the Indian equities markets are expected to further deplete the rupee in the coming week.

As per currency market observers, the Indian rupee can further depreciate from its current level of 68.14 against a US dollar to 68.60 in the coming week.

"Over the next week, we can see the Indian rupee weaken towards 68:60-80 levels on spot, on the back of rising US bond yields and the US dollar," Anindya Banerjee, Associate Vice President for Currency Derivatives with Kotak Securities, told IANS.

On Friday, the Indian rupee weakened to its lowest level in the last nine months. It receded by 32 paise to 68.14 against a US dollar from its previous close of 67.82 to a greenback.

"Over the past week, hawkish comments from the US Federal Reserve Chair has helped US dollar gain against most EM (emerging markets) currencies, including the Indian rupee," Banerjee pointed out.

According to Hiren Sharma, Senior Vice President and Head-Forex Advisory at Anand Rathi Financial Services: "Only if the dollar's rising momentum ceases or a proactive RBI (Reserve Bank of India) intervention happens, a comeback in rupee looks bleak... It is not far from it's all-time low of 68.83. And Nifty is very near to this rally's low."

"Parallely, one also needs to look at correction in USD/INR Forward Premiums -- which have fallen significantly post 8th of November (from more than Rs 3.60 to Rs 3.07 for one year tenure)," Sharma said.

"Looks like spot buy and forward sell is happening either for square off's or immediate payments. And also due to the fact that now as US Fed rate hike looks imminent and a possible RBI rate cut on 6th of December -- thereby narrowing the interest rate differential even further."

On Thursday, the US Federal Reserve's Chairman Janet Yellen signalled a possible US rate hike in December.

A hike can potentially lead foreign portfolio investors (FPI) from emerging markets such as India, and dent the business margins of corporate sector, as access to capital from the US will become more expensive.

The prospects of a US rate hike also depressed the Indian stock markets during the week ended Friday, as it triggered a massive outflow of foreign funds.

The provisional data with stock exchanges for Friday showed that the FIIs (foreign institutional investors) sold stocks worth Rs 988.93 crore, whereas for the entire week ended November 18, foreign investors sold Rs 6,221.11 crore.

Figures from the National Securities Depository (NSDL) disclosed that foreign portfolio investors (FPIs) were net sellers of equities worth Rs 6,666.11 crore, or $985.91 million from November 15-18.

"The FIIs have been on the selling side for the last couple of days, due to which the Indian markets have witnessed a substantial amount of outflows," Anand James, Chief Market Strategist, Geojit BNP Paribas Financial Services, told IANS.

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

--IANS

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