Companies, banks bet Indian rupee’s recovery has more legs

Corporates who trade in forex markets and proprietary desks of banks are wagering that the Indian rupee will appreciate further against the US dollar, helped by a narrowing current account deficit and better “carry” returns, several bankers and analysts told Reuters.

The rupee reached 81.78 to the US dollar on Monday, its highest in about a month and up about a percent since the beginning of March. It was last at 82 to the dollar.

The rupee is on a three week winning run, outperforming the Chinese yuan and the South Korean won in that period.

“What we are talking of is the next two to three months. If you ask most traders, there is a definite bias towards rupee appreciation,” head of trading at a large foreign bank said.

“This view is there because one of the macro data points is showing positivity,” he added, referring to India’s decreased external risks, thanks to a narrowing current account deficit (CAD).

Last week the World Bank projected India’s CAD will narrow to 2.1 per cent of GDP in current fiscal year from an estimated 3 per cent in the previous year.

“Positions of corporates who trade regularly are usually aligned to that of banks. And banks, unless you are outlier, are short (on USD/INR),” a senior trader at a private sector bank said.

None of the bankers wanted to be named because they are not allowed to talk to the media.

The lower volatility allowed for “relatively large position sizes” from the risk perspective, he added.