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Indian rupee may touch 19.9 vs UAE dirham

Dubai - The currency is expected to weaken further in the coming weeks.

The Indian rupee is likely to remain under increasing pressure in the coming weeks ahead of the federal budget for 2020-21 on the back of rising oil, geopolitical tensions and slow economic growth, forex market experts predicted on Sunday.
The rupee continued its plunge on Monday, depreciating by 31 paise to 72.11 (Rs19.65 against the dirham) in early trade. On Friday, the currency plummeted by 42 paise to settle at a one-and-a-half-month low of 71.80 against the US currency (19.56 against the dirham), weighed by the relentless spike in crude oil prices after US President Donald Trump ordered the killing of a top Iranian general.
Reflecting the overall dismal sentiments, Indian stock market closed sharply lower on Monday. The benchmark Sensex lost 788 points and the broader Nifty slipped below the psychologically important level of 12,000. The Sensex settled at 40,676.63 while the Nifty closed at 1,993.05 after a broad-based sell-off in the equity markets.
Forex experts said that the beleaguered currency is expected to weaken further to 72.50-72.70 in the coming weeks due to concerns the potential impact spiraling oil price rally will have on India's fiscal deficit and overall economy.
Pradeep Unni, Head of Strategic Business Development, Richcomm Global Services DMCC, said the rupee is consistently on a losing track and the recent developments in the Middle East had further worsened its recovery possibilities.
"The rupee, which was already hurt by the lower growth rate forecasts and downgrade by multiple rating agencies, is now under increased pressure on the back of surging oil prices," said Unni.
However, it must also be noted that Reserve Bank of India is now much well-prepared with higher dollar reserves to stave off major weakness in rupee due to the Mideast tensions. It is very likely that rupee will likely breach the 72 levels in the coming week and may even hit the 72.50/73 (19.75/19.89 vs the UAE dirham) mark if there no intervention from the RBI front. Markets are also predicting that the Financial Year Budget on Feb 1 2020 will have major policies aimed to boost the economic conditions on the nation," said Unni.
Currency analysts said the rupee's steep fall despite a sliding dollar is indicative of the fundamental weakness of the overall economy and the widening fiscal and current deficits. Analysts are bearish also on account of slowing global growth rate, slump in consumption expenditure and increased pace of slowing Indian economy.
Easing monetary policy from the Reserve Bank of India keeps limiting rupee's bulls prospects. Experts said the rupee forecast would be determined by the resolution of the tight trading range between 70.50 and 72.00.
After falling nearly nine per cent in 2018, the Indian rupee fell another four per cent and touched a 2019 low level of 72.40 against the greenback on September 3 in the wake of the tit-for-tat trade war between the world's two largest economies.
Indian economy continued its downward spiral for the seventh consecutive quarter, falling to 4.5 per cent in the second quarter (July-September) of the year 2019-20. The GDP growth seen in the second quarter was slowest in more than six years. The previous low was recorded at 4.3 per cent in the final quarter (January-March) of 2012-13.
Following the flare-up of Middle East tension, global oil benchmark, Brent Crude, surpassed the $70 a barrel mark on Monday, sparking fears of price rise in items of everyday use. The rising oil prices is especially significant as Indian imports nearly 85 per cent of its oil requirements.
"Rupee extended losses yet again on back of US-Iran tensions," Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities said adding that spike in crude prices is making importers buy US dollar to hedge net outflows for crude buying.
Traders said besides US-Iran tensions, weak domestic equity market also weighed on the local unit.
Rusmik Oza of Kotak Securities said the Indian market is reacting more negatively than other emerging markets due to crude oil impact. "Since our dependence on crude imports as a percentage of consumption is the highest, the impact on the economy and markets is also higher."
Traders said that the near-term outlook of the rupee depends upon the outcome of the trade talks between the US and China.
"As the US continued to interfere in Hong Kong issue, there are concerns whether the deal will happen or not. If the trade talks fail then the US will go ahead with tariffs on Chinese goods from 15th December," said Rushabh Maru, Research Analyst - Currency and Commodity, Anand Rathi Shares and Stock Brokers on rupee performance.
Maru further noted that there is also a threat of Yuan devaluation if the trade talks fail. Hence the outcome of the trade talks will determine the direction of the rupee.
- issacjohn@khaleejtimes.com