War Fears To Decide Re Course, Forwards Seen Flat

The movement of the rupee this week will solely hinge on developments across the Indo-Pakistan border.

Majority of foreign exchange dealers expect the Indian currency to be ranged between 47.80 and 47.85 provided the war of words between the two countries does not escalate into a full-scale war.

Forward premiums are expected to remain flat this week. The six month annualised premium will hold steady in the 6.40-6.60 per cent band, while the one-year premium will be in the 6.05-6.15 per cent range.

The rupee had tested a high of 47.7550 on account of sustained inflows last week but weakened to close at 47.82 on acount of border tensions and sustained buying by public sector banks.

 

"The market has been thin in the last couple of days with the slight demand being more than matched by ample supplies. This situation led the rupee to strengthen. To tackle this appreciation in the currency, the Reserve Bank of India intervened through public sector banks, which bought dollars," said a forex dealer with a public sector bank.

Considering the ongoing rift between India and Pakistan, importers will be advised to seek cover for their payables, a dealer said.

Once importers begin seeking forward cover, the rupee could come under pressure and depreciate to around 48.

"The forex market will be dull in view of the long new year holidays coming up next week across the world. Thin markets could impart volatility to the rupee in case of an outbreak of conflict between India and Pakistan," a dealer with a foreign bank said.

Outlook for the rupee, which closed at 47.8250/8350 against the dollar on Friday, could turn adverse once military action starts across the border, said another dealer with a public sector bank. He added that forward premiums could trade higher on account of the war fears and tight money market conditions expected next week.