Outlook: Currency

Rupee will be less volatile

The rupee is likely to be less volatile this week and should trade in the range of 48.20-35 against the greenback.

However, the market is watching out for some key factors such as the situation in Iraq and also for the direction taken by the Reserve Bank of India (RBI). There will be a bunched-up supply into the market as the US markets were closed on Thursday.

However, the direction of the currency will depend on the action triggered by the central bank. Public sector banks were continuously buying dollars on Friday. Along with this, month-end demand saw the currency touch an intraday low of 48.34.

 

Dealers felt that the apex bank was trying to buy dollars to infuse more liquidity into the system. Also, with New York markets closed on Thursday, for Thanksgiving Day, there were no dollar supplies in the market on top of demand from some oil companies.

Dealers said there has been no panic by importers.

They, however, added that there has been a slight change in the market sentiment in the later part of last week as the markets were more volatile than usual. They said the dollar supplies are likely to dry up in the course of next month.

Foreign institutional investor (FII) inflows into the stock market are likely to slow down a bit in December, as they are likely to book their profits and consolidate their positions. US-based funds are known to be sellers in December since they have to pay out dividends to their unitholders.

Even NRI inflows are also likely to lessen in the last month of the calendar year which could slow down to a trickle as the festival season approaches.

Another factor which the market will also have to watch out for is the lack of dollars in the market. Dollar supply is being sucked out continuously by the RBI. Also, NRIs are parking their money in rupee deposits than in FCNR deposits to get better rates of interest. Coupled this with the demand from corporates for FCNR(B) loans, there is a shortage of greenback in the market.

Premiums to go up

In the forwards segment, annualised premiums on both six-month and one-year forwards are likely to move higher. They are likely to trade in a range of 3.50-3.90 per cent. Exporters, who have been selling at every level might decide to cover short positions.

The markets could also seen some paying in pressure. The central bank has indicated that it is not comfortable with the yields. It has announced an on Monday for Rs 4,500 crore.