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Rupee may gain strength on weak $ expectations after US jobs data

The rupee is likely to claw its way back to above 60-levels this week helped by the recent measures taken by the Reserve Bank of India (RBI), the country’s central bank, coupled with a weak dollar after United States jobs data eased concerns over an early withdrawal of easy money policy by the US Federal Reserve Board (Fed), say bankers and analysts.  Treasury officials of various banks see the rupee appreciating to the 60 levels this week.

The rupee fell 67 paise on Friday to record closing low of 61.10 against the dollar. The previous record low closing was 60.72 on June 26.
The rupee touched an all-time intra-day low of 61.21 against the greenback on July 8, which forced the central bank to unleash a slew of measures from July 15. ‘With non-farm payroll data in America coming out to be weak, the dollar will remain under pressure,’ said Mohan Shenoi, President for Group Treasury at Kotak Mahindra Bank. US non-farm payroll data, which indicates the number of people on the payrolls of all non-agricultural businesses, rose by 1,62,000 in July but is lower than analysts’ expectation of 1,84,000 and compared to 1,88,000 additions the previous month.

Lesser number of people getting new jobs indicates that the world’s largest economy is far from recovery and the Federal Reserve Board has to continue to support the economy for longer time.
US Fed Reserve Board Chairman Ben Bernanke had stated on May 22 that he might start turning off the easy money tap if economic conditions improve earlier than expected and put a September-December deadline to begin the tapering. Later in June he had said that the US Fed would unwind the $85 billion-a-month quantitative easing (QE) by mid-2014, which led to a massive slide in the rupee which has fallen over 10 per cent in the past three months. 

‘The RBI measures will help the rupee to appreciate,’ observed Central Bank of India General Manager (treasury) Ramesh Singh. The rupee is likely to be under pressure in the near term but will appreciate a bit from the current level to around 57.5 against the dollar by this fiscal-end, according to research firm D&B.

External market volatility and a high current account deficit (CAD) are still weighing on the currency and will keep it under pressure, it said. ‘By this calender year-end, the rupee is likely to be around 58.5/$ to 59/$ while by March 2014 it is likely to be 57.5/$,’ forecast global research firm Dun & Bradstreet Senior Economist Arun Singh. To save the battered rupee, which is the worst performing unit among the Asian currencies, the Reserve Bank of India had announced various liquidity measures the previous month that helped reduce speculation and rupee volatility. Since July 15, the Reserve Bank has steeply raised short-term borrowing rates, restricted access to borrowing under liquidity adjustment facility, stipulated higher daily maintenance of cash reserve ratio and undertook open market sales of government securities.

Last week, the Reserve Bank of India also tightened hedging norms for foreign institutional investors (FIIs) by asking them to secure mandates from clients for hedging the underlying securities of sub-account investors and holders of participatory notes. However, some of the market experts see the rupee breaching its record intra-day low of 61.21 this week on concerns over the current account deficit and weak domestic market.

This had foreign institutional investors pulling out from domestic debt and equities to the tune of about Rs 63,410 crore between May 22 and August 2. ‘Pressure on domestic stocks may be negative for the rupee,’ said Kotak Bank’s Shenoi, who sees rupee trading in a band of 60.40-61.30 in the coming week.

The Bombay Stock Exchanges’ (BSE) benchmark 30-share Sensitive Index (Sensex) ended in negative zone for the eighth day in a row on Friday at 19,164. ‘Downward pressure on the rupee will continue. With so much high current account deficit and the state of the stock market, it is difficult to finance the current account deficit,’ said A V Rajwade, forex and treasury risk management consultant at AV Rajwade & Co.
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