Rupee may fall to 70 against dollar on oil, CAD

The Indian rupee is likely to touch 70 a U.S. dollar as weakness in the currency market is continuing with the upward trend in crude oil prices and strengthening of the U.S. dollar index, aided by a widening current account deficit (CAD) and steady capital outflows which have weighed on the rupee, according to experts.

The outlook for the Indian rupee, in the near term, would be dominated by the sentiment towards the U.S. dollar, the risk of trade wars, movements in yuan, as well as the trend charted by crude oil prices, said Aditi Nayar, principal economist, ICRA.

While the yuan movement would affect many emerging market currencies, crude oil prices would have a substantial impact on the currencies of oil importing nations such as India. If crude oil prices chart a sustained uptrend, the negative sentiment related to a rising current account deficit as well as inflationary concerns may spur the rupee to intermittently test the previous all-time lows.

‘Swift reversal’

“In the near term, the dollar-rupee cross rate temporarily breaching 70 can’t be ruled out, although it would likely record a swift reversal,”Ms. Nayar added.

“The 70 level could continue beckoning Indian rupee and U.S. dollar exchange rate. Surging oil price is a major worry,” said Anand James, chief market strategist, Geojit Financial Services Ltd. Brent crude price is hovering at about $78 per barrel in the international market.

“It’s hardly surprising that Indian rupee is on an accelerated depreciation phase against U.S. dollar. Probably, this trend might continue until May 2019,” said Bhaskar Panda, senior regional head — treasury advisory group, HDFC Bank.

“Commodity prices have had a sharp rally in the previous two to thee years along with global crude prices. We have seen the 10-year dollar benchmark yield going past 3% mark this year and U.S. Fed still on the way to get more rate hikes,” Mr. Panda added.

Lately, the sentiment in the foreign exchange market had been further weakened by the reported comments of government officials that the rupee needs to retain trade-weighted parity against competing exporter nations, especially in the face of a likely global trade conflict.

Private investment

Given the present scenario, said Mr. James, the prospects of rupee hinges on the extent of private investment that can come in, for which the debt overhang had been a cause of big worry.

Forecast for normal monsoon may cool inflation expectations for now, but the pace of resolution of debt-ridden companies as well as revival of capital expenditure cycle and lending growth would be closely watched.

“We believe that, for now, given the strength in oil and dollar, 70 is a fair possibility,” Mr. James added. FIIs have become more reluctant in Indian equities lately. CAD is also projected to edge higher, while inflation at both consumer and wholesale level has reversed the declining trend. “All of these put pressure on rupee,” said Mr. James.

Looking at current scenario, IFA Global research advises traders that the pair has higher chances to move above the 69-mark by July end, but upside can be capped below 70.

Index trading high

The U.S. Dollar Index is moving in a band of 93.80 support level and the 95.20 resistance barrier.

The price jumped to an almost fresh one-year high of 95.22 on June 28, 2018. The dollar internationally has clearly broken the downtrend and now the index is trading high, said Abhishek Goenka, founder and CEO, IFA Global.

Furthermore, rate hikes in the U.S. are very much on the cards and according to Mr. Singhvi, “the possibility of the rupee hitting 70 soon is increasing.”

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