Red-hot rupee scales 39.85 against dollar
A day after Ben Bernanke threw a long rope to the stock market, the rupee breached the psychological mark of 40 to touch 39.85 against the dollar - a nine-year high.
By TNN |
MUMBAI: Very soon Mumbai bookies will be betting on the rupee. How far can it go? A spiralling currency has already baffled CFOs, forced small exporters to hedge the currency risk for the first time, and driven software biggies sell analysts the story as to how best they have covered their books.
The paranoia will only rise in the weeks to come. A day after Ben Bernanke threw a long rope to the stock market, the rupee breached the psychological mark of 40 to touch 39.85 against the dollar — a nine-year high. On Thursday, it closed at 39.89, after opening at 40.18 level. The rupee and interest rate benchmarks are already hot bets in the over-the-counter derivatives market in several countries.
In the non-deliverable forward market, international investors were even more bullish on the rupee. Such trades are expected to grow. Though volumes are yet to pick up, the rupee futures are already trading on the Dubai exchange. Bankers and treasury managers expect the rupee to rise to 39.50-levels in the near term, and 38.50 by December 2007 — last seen in the late 90s. The government, in election mode, may feel the pressure to extend fiscal sops to exporters.
Euro and rupee billing by exporters are a fond hope since few Indian exporters have the clout and bargaining power to convince overseas buyers to accept a currency they may not be comfortable with. A weak dollar seems to be a globally-pervasive phenomenon. On Thursday, the Canadian dollar was trading on par with the US dollar — an exchange rate last seen in 1976.
BNP Paribas’ country treasurer Manoj Rane said: “The rupee could touch 38.50-levels against the dollar by the year-end. We can expect the rupee to rise further on the back of strong capital inflows, despite the intermittent volatility and the situation in the US, which is causing the dollar to depreciate. It will be logical for the central bank to allow the rupee to rise, because intervention will lead to further infusion of rupee funds and raise the concerns on inflation.”
In July 2006, the rupee had dipped to 47 levels against the dollar. Between March and July, the rupee rose by almost 9.50%, from 44.25 levels per dollar to around 40.20 levels. However, the rupee dipped for sometime after mid-August as global credit woes rattled Dalal Street.
It started gaining since early September as market sentiments improved. Hinduja group’s CFO Prabal Banerji said: “The rupee is likely to strengthen further from these levels, given the possibility of further capital inflows. Now, even if the Fed withdraws its current stance, it might not have an impact on the rupee. Going forward, even debt instruments overseas might not be attractive.”
He said hedge funds are likely to look at India with greater interest. Unless the central bank begins to intervene in the forex market, the rupee could even rise to 39-39.50 levels over the next three-six months. Exporters will have to hedge their receivables at the earliest. “Forward contracts are a viable option, but if exporters are able to purchase options, which allow them to benefit in case of a blip in the rupee, even that is feasible,” he said.
Typically, when the US lowers rates, FIIs begin looking for greener pastures like India and China where they can earn a higher return. When dollar inflows rise into these economies, the local currencies in these markets begin to grow stronger.
Even other currencies like the Indonesian rupiah, the Mexican peso, the Korean won, the Japanese yen and the Malaysian ringgit also rose against the greenback. Echoing a slightly different view, Sundeep Bhandari, MD and regional head, Global Markets and South Asia, Standard Chartered Bank, said: “The market had anticipated that the central bank would step in to protect the rupee at the 40-mark. However, the local currency could head back towards the 40.50 levels if the dollar recovers from its losses, once the turmoil in the markets settles down.”
The paranoia will only rise in the weeks to come. A day after Ben Bernanke threw a long rope to the stock market, the rupee breached the psychological mark of 40 to touch 39.85 against the dollar — a nine-year high. On Thursday, it closed at 39.89, after opening at 40.18 level. The rupee and interest rate benchmarks are already hot bets in the over-the-counter derivatives market in several countries.
In the non-deliverable forward market, international investors were even more bullish on the rupee. Such trades are expected to grow. Though volumes are yet to pick up, the rupee futures are already trading on the Dubai exchange. Bankers and treasury managers expect the rupee to rise to 39.50-levels in the near term, and 38.50 by December 2007 — last seen in the late 90s. The government, in election mode, may feel the pressure to extend fiscal sops to exporters.
Euro and rupee billing by exporters are a fond hope since few Indian exporters have the clout and bargaining power to convince overseas buyers to accept a currency they may not be comfortable with. A weak dollar seems to be a globally-pervasive phenomenon. On Thursday, the Canadian dollar was trading on par with the US dollar — an exchange rate last seen in 1976.
BNP Paribas’ country treasurer Manoj Rane said: “The rupee could touch 38.50-levels against the dollar by the year-end. We can expect the rupee to rise further on the back of strong capital inflows, despite the intermittent volatility and the situation in the US, which is causing the dollar to depreciate. It will be logical for the central bank to allow the rupee to rise, because intervention will lead to further infusion of rupee funds and raise the concerns on inflation.”
In July 2006, the rupee had dipped to 47 levels against the dollar. Between March and July, the rupee rose by almost 9.50%, from 44.25 levels per dollar to around 40.20 levels. However, the rupee dipped for sometime after mid-August as global credit woes rattled Dalal Street.
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It started gaining since early September as market sentiments improved. Hinduja group’s CFO Prabal Banerji said: “The rupee is likely to strengthen further from these levels, given the possibility of further capital inflows. Now, even if the Fed withdraws its current stance, it might not have an impact on the rupee. Going forward, even debt instruments overseas might not be attractive.”
He said hedge funds are likely to look at India with greater interest. Unless the central bank begins to intervene in the forex market, the rupee could even rise to 39-39.50 levels over the next three-six months. Exporters will have to hedge their receivables at the earliest. “Forward contracts are a viable option, but if exporters are able to purchase options, which allow them to benefit in case of a blip in the rupee, even that is feasible,” he said.
Typically, when the US lowers rates, FIIs begin looking for greener pastures like India and China where they can earn a higher return. When dollar inflows rise into these economies, the local currencies in these markets begin to grow stronger.
Even other currencies like the Indonesian rupiah, the Mexican peso, the Korean won, the Japanese yen and the Malaysian ringgit also rose against the greenback. Echoing a slightly different view, Sundeep Bhandari, MD and regional head, Global Markets and South Asia, Standard Chartered Bank, said: “The market had anticipated that the central bank would step in to protect the rupee at the 40-mark. However, the local currency could head back towards the 40.50 levels if the dollar recovers from its losses, once the turmoil in the markets settles down.”
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