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Tue 5 Nov 2019 10:55 AM

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Indian rupee expected to slide against dollar despite recent gains

Current strengthening trend of rupee mainly due to increased FPI inflow into Indian stock and debt market and not linked to improvement in any macro economic factors

Indian rupee expected to slide against dollar despite recent gains

The Indian rupee lost 14 paise or 0.19 percent to 70.69 against US dollar in the morning trading hours on Tuesday, a day after touching a 5-week high of 70.55 against the Greenback, amidst predictions about a bearish outlook for the Indian currency in the current month.

Concerns over the deteriorating macro economic conditions in Indian economy, expected rise in inflation due to rising prices of many agri commodities and continued uncertainties globally are cited as the reasons for the bearish outlook on rupee in the short-to-medium term.

“Considering the slump in demand across many sectors as also in exports, adversely affecting the macro economic situation in the Indian economy, expected price rise in many of the agri products and fluid external environment on account of lingering US-China trade tensions and uncertainty over Brexit, we expect rupee to slide to 71.60 level against dollar by the month end,” Ajay Kedia, managing director of Kedia Commtrade and Research, told Arabian Business.

“The current trend of strengthening of rupee is mainly on account of increased inflow of foreign funds in the wake of interest cut in the US, and not linked to improvement in any other factors which have a bearing on movement of the Indian currency,” Kedia added.

Middle East inflows

Forex traders said though Brent prices cooled down a bit recently, it is still in the region of $61 per barrel and could reverse the direction at the slightest hint of a fresh development in regional tension or on the international trade front.

Movement of rupee against the US dollar has a major influence on remittances and transfers by non-resident Indians (NRIs), especially Gulf-based expat Indians, to India.

“We see a spurt in foreign fund inflows and remittances, especially from the Middle East region, whenever rupee see major depreciation (against USD),” Ravi Ranjit, senior executive with Federal Bank, who deals with the overseas operations of the bank, told Arabian Business.

Rupee closed at 70.81 against the Greenback on Friday. The Indian currency, which fell to over 72 against dollar in early September this year, has been moving in the range of 71.80 – 70.90 in the last 2 month period.

Open interest in the dollar-rupee November contract on the NSE (National Stock Exchange), which was at 70.99 in the previous session, saw an increase of 8.6 percent on Monday, according to ICICIdirect.

Forex market traders said the upward movement in rupee against dollar in the last few trading sessions was mainly on account of large foreign fund investments in the equity and debt market in India. Foreign investors have invested over $2.06 billion in last three trading sessions in the Indian equity and bond markets.​

The optimism that China and US are moving closer towards an interim trade deal also improved sentiment, a Delhi-based forex market analyst said.

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