Bullish undertone

OUTLOOK: Currency

The spot rupee is expected to have a bearish undertone on account of dollar bullishness.

According to dealers, the dollar is expected to benefit from the weakness in the eurozone economy. This means, weakness in the euro backed by differences in European Council has led to the strengthening of the dollar rather than a dollar rally being propelled by domestic economic (in the US) fundamentals.

The dollar is likely to appreciate further next week as the differences in Europe are likely to continue. However, the impact of the strengthening of the dollar on rupee weakness will be, to some extent, nullified by foreign exchange inflows.

It is also expected that the Reserve Bank of India may intervene directly or indirectly to hold the rupee at its current levels rather than allow it to depreciate as oil payments are huge.

However, compared to other Asian currencies, the rupee is overvalued by 7-8 per cent. Dealers said, the domestic currency might even go down to 43.85. It is likely to move in a range of 43.45-43.60 to a dollar during this week.

Forwards seen firm

Premium on dollars booked for a forward rate, otherwise called forward dollars, is expected to remain firm. This is because, the dollar is expected to strengthen this week, which will put pressure on the rupee to depreciate. This, in turn will make importers and interbank players nervous and they will look to book forward dollars.

However, dealers rule out an exaggerated movement in forward premiums, given the narrowing of the interest rate difference between Indian and US with the ninth round of rate hikes.

Recap: The spot rupee remained rangebound throughout the week, staying in a band of 43.50-43.70 against the dollar with supply and demand of the greenback matching perfectly.

Even if the dollar gained globally, the spot rupee was supported by forex inflows. However, banks continued to sell dollars which some dealers perceived as RBI's intervention to check the rupee's depreciation.

Post script: The Federal Reserve raised its base rate for the ninth time in a row to 3.25 per cent.