PremiumIndian currency ended the week on a flat note and stood around 82.44 against the dollar on Friday. In October, the rupee depreciated by 1.55% against the American currency. So far, in the current year, the rupee has weakened significantly by more than 10% against the dollar due to macroeconomic conditions and the greenback which escalated to reach about 2-decades highs. This would be the local unit's biggest losing streak in about four decades. With November month kicked started, the rupee is expected to range between 81.25 to 83.25 levels against the dollar. However, the next month may see the rupee weakening to a record low and breaching the 84-mark.
On the weakening in the rupee, Sriram Iyer, Senior Research Analyst at Reliance Securities said that the primary reason for the depreciation is hawkish Fed has pushed the dollar to two-decade highs.
This year, as of now, the dollar has strengthened by a whopping 16% against a basket of world currencies. The greenback even tested 114.80 levels in September and traded near its 2002 peak.
Meanwhile, US Federal Reserve has made a fourth aggressive rate hike by 75 basis points this fiscal to tackle multi-decadal high inflation. This week, Fed chair Jerome Powell stated that rates could peak at higher levels than policymakers previously anticipated.
Another reason for the depreciation of the rupee would be crude oil prices.
Iyer said, "Covid-19 pandemic saw the oil prices move into negative territory, but the Russia-Ukraine conflict has pushed the oil above $100 per barrel. This in turn has impacted out trade and fiscal deficits and in turn hurting the Rupee."
Then there is the offshore Chinese yuan which depreciated by about 15% year-to-date --- which also played a spoilsport for the rupee.
According to Iyer, like the domestic unit, the Yuan has weakened due to the hawkish fed. However, there is a domestic reason why the Chinese currency has weakened this year. Strict covid-19 policy, gloomy economic prospects, and heightened geopolitical tensions have also weakened the currency, which had an indirect impact on the domestic unit as well.
At the interbank forex market, on Friday, the Indian rupee appreciated and closed at 82.44 against the US dollar at the interbank forex market. The strengthening in the rupee was driven by a rally in the Chinese yuan due to hopes of relief in U.S.-China tensions and expectations of easing of pandemic curbs by Beijing. On the previous day, the rupee was 82.88 against the US dollar.
How does November look like for the rupee?
In Iyer's view, "looking ahead, we see the Rupee in a trading band in November. Most of the negative news and hawkish Fed to an extent has been factored in."
Also, direct aggressive intervention from the RBI can be expected if the Rupee breaks the comfort zone of the central bank. Moreover, the central bank will continue to do buy/sell swaps to stabilize the currency, Iyer added.
For the rest of November, Reliance Securities expert believes the rupee could remain within a trading band of 81.25 to 83.25. However, by December end, Rupee’s weakness could remain intact and could test 84.00 levels.
Furthermore, the stock brokerage's expert expects the inflation to remain stubbornly high which will keep the U.S Fed hawkish on future rate hike paths in December as well.
However, Iyer added that FPI generally withdraws or books profits during the year-end, which could also have a negative impact on the domestic currency.
In regards to geopolitical tension, Iyer believes this will also be one of the reasons why the Rupee could remain weak. If tensions between China and Taiwan escalates, then it could lead to another war that the world cannot afford right now.
"So, we expect the Rupee to remain weak. Range for the Rupee in December could be 80.50 to 84.00," Iyer concluded.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.