Experts predict Rupee downfall to $70

MANISHA GUPTA/ET, MUMBAI | 08 July 2013 21:41 IST

It was yet another day when the Indian rupee continued to weaken against the US dollar and hit a fresh all-time low. On expected lines, the rupee breached 61 to the dollar mark in opening trade itself following strong US non farm payroll data on Friday.


While the strong dollar put pressure on most major and emerging currencies, the rupee was the worst hit in Asia. It's been three months since the rupee has been in a down-trend. The rupee has lost nearly 3 per cent in the month of July alone. 

The next trigger for the rupee will now come from the FOMC policy minutes on July 10 and that would set the direction for most assets. 

While there are reports of the Reserve Bank of India (RBI) intervening at 61.20 levels, the markets haven't taken these interventions seriously. After a short bout of gains, the currency continued to remain weak. 

The RBI and Finance Ministry recently tried to pep up the rupee but failed to change its course. The RBI's move to meet oil marketing companies to discuss their dollar demand isn't comforting either. 

We import 80 per cent of our crude requirements and so dollars will anyhow go out of the country irrespective of whatever arrangement the RBI makes. 

There is also no support from exporters in this volatile period. While the import payments are to be made on time, the exporters are not coming into the market as they hope for a further fall in the Indian unit. 

There also are reports on FII being told to prove that they are hedging and not speculating into the Indian currency.
 Apart from the developments in the US, which has been the major reason for the rupee fall, there are other factors as well that are putting pressure on the currency. 

Crude oil prices, which have rallied 7 per cent in last week alone, have been hurting the rupee as well. High crude oil prices and weak currency make for case high inflation. The depreciating rupee is also building up a case of imported inflation as increased cost of imported commodities and goods goes higher. 

The Current Account Deficit worries have been putting pressure on currency for months. Adding to the woes is the Food security Bill. If it is passed, it will increase the pressure on government subsidies and in turn be bearish for the unit. 

Other concerning factor is the FII outflows from Asian debt and Equity markets. The resurfacing of debt concerns in Europe, unrest in Egypt, Libya, Syria etc is creating a sentiment of uncertainty in the global risk appetite as well. 

The Government needs to rush up the next round of reforms to encourage long terminvestments, and roll back subsidies to make it lucrative. 

The Rupee at the current levels may have factored in all these negative points. The currency does look oversold and tired at 61. There is a good monsoon at hand but nobody is talking about it. 

The momentum is still bearish and big voices on the street are calling rupee undervalued at current levels. They are predicting Rs 70 per dollar plus kind of levels. If the forecasts are to be believed then brace for more pain in the rupee market and Indian equities as well.
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