Rupee expected to stay at 45.70-46.30 level

Fear factor is driving the price action in the financial markets. Debates about double-dip recession, euro zone banking woes and US economic problems triggered the recent selloff in global equities.

The recent downgrade by Morgan Stanley on global growth has weighed heavily on the equity markets recently. Commentary by RBI officials last week suggests that the Central Bank may not loosen its grip on inflation and indicates that there could be another 25-basispoint rate hike in September. All these factors have weighed on the domestic equity markets.

Equity indices have lost more than 4% during the week. FIIs have been net sellers last week and markets have seen a net outflow of $1.7 billion in the current month and in the calendar year, the net investments have come down to $4.5 billion.

The volatility is here to stay for some more time. Markets are looking ahead to Fed chairman Bernanke's speech at Jackson Hole on August 26.

Forex demand from oil refiners for payments to Iran is expected to continue in the coming week. Domestic equities will come under pressure due to weak global sentiment. Strains in US dollar funding in the inter-bank markets globally would help the dollar garner strength across the board.
We expect the rupee to trade in the range of 45.70-46.30 to the dollar in the ensuing week. Forward Dollar Premia might remain under pressure in the coming week as US dollar shortage is likely to persist both in the domestic markets and global markets.

KN Dey is Director, Basix Forex & Financial Solutions