Don’t jump over rupee hitting 17-month high; reversal of seasonality on the cards
NEW DELHI: The rupee rose 0.56 per cent on Monday to hit a 17-month high of 65.05, a level last seen on October 28, 2015, helped by a weak dollar and positive economic and political developments.
Besides, one more thing is working in its favour; the seasonality factor. Traditionally, the domestic currency tends to stay firm from February through mid-April.
And market watchers have warned currency traders to brace for a likely trend reversal in the second half of April.
“We advise forex investors to watch for a reversal in trade/rupee seasonality in April. We would like to point out that support of seasonality typically strengthens the rupee from February through mid-April. Summer and rains typically slow down industrial production and exports and weaken the rupee during April-September. As the weather improves in October-March, higher production and exports appreciate the rupee,” BofA-ML said in a note. (See chart)
The brokerage noted that the ruling government would not wish to face currency volatility in the run-up to the 2019 general elections.
“RBI amassed forex reserves during 1999-2014. We had expected Governor Raghuram Rajan to recoup forex reserves after Prime Minister Narendra Modi’s victory in mid-2014. After all, the decision to let RBI appreciate the rupee to fight higher oil prices at the cost of buying foreign exchange in 2009-12 ultimately boomeranged on the UPA-II government in a massive depreciation before the 2014 elections,” the brokerage said.
Analysts in an ETMarkets.com poll pegged the domestic currency at 64-68, with BofA-ML analysts seeing it at 70 going ahead.
The rupee may see some appreciation in the short term, but it will largely remain rangebound between 65 and 68 levels, said Vaibhav Agrawal, Head of Research & ARQ at Angel Broking.
“After a long halt, the rupee has been appreciating in line with other emerging markets currencies, aided by a recovery in global growth expectations and weakening of the dollar. For FY18, the domestic currency is likely to trade in the 64-68 range, and it is likely to hit the 68 level only in the case of a major risk-off sentiment,” Pankaj Pandey of ICICI Securities told ETMarkets.com.
The domestic currency market was closed for trading on Wednesday on account of Gudi Padwa.
Besides, one more thing is working in its favour; the seasonality factor. Traditionally, the domestic currency tends to stay firm from February through mid-April.
And market watchers have warned currency traders to brace for a likely trend reversal in the second half of April.
“We advise forex investors to watch for a reversal in trade/rupee seasonality in April. We would like to point out that support of seasonality typically strengthens the rupee from February through mid-April. Summer and rains typically slow down industrial production and exports and weaken the rupee during April-September. As the weather improves in October-March, higher production and exports appreciate the rupee,” BofA-ML said in a note. (See chart)
The brokerage noted that the ruling government would not wish to face currency volatility in the run-up to the 2019 general elections.
“RBI amassed forex reserves during 1999-2014. We had expected Governor Raghuram Rajan to recoup forex reserves after Prime Minister Narendra Modi’s victory in mid-2014. After all, the decision to let RBI appreciate the rupee to fight higher oil prices at the cost of buying foreign exchange in 2009-12 ultimately boomeranged on the UPA-II government in a massive depreciation before the 2014 elections,” the brokerage said.
Analysts in an ETMarkets.com poll pegged the domestic currency at 64-68, with BofA-ML analysts seeing it at 70 going ahead.
The rupee may see some appreciation in the short term, but it will largely remain rangebound between 65 and 68 levels, said Vaibhav Agrawal, Head of Research & ARQ at Angel Broking.
“After a long halt, the rupee has been appreciating in line with other emerging markets currencies, aided by a recovery in global growth expectations and weakening of the dollar. For FY18, the domestic currency is likely to trade in the 64-68 range, and it is likely to hit the 68 level only in the case of a major risk-off sentiment,” Pankaj Pandey of ICICI Securities told ETMarkets.com.
The domestic currency market was closed for trading on Wednesday on account of Gudi Padwa.
