Indian Rupee On Track To Breach 84 Against The Dollar, Say Analysts

The Indian rupee depreciated to record low of 83.29 before some recovery on Thursday.

<div class="paragraphs"><p>(Photo: Rupixen/Unsplash)</p></div>
(Photo: Rupixen/Unsplash)

Another day. Another record low. The Indian rupee opened at a fresh low on Thursday, depreciated further to 83.29 against the dollar during the day's trade but saw some recovery after that.

Still, analysts expect the weakness in the rupee to continue, with most forecasting that the rupee is set to breach 84 against the dollar during the ongoing quarter.

"We continue to expect USDINR to touch 84 before the end of FY23," said Vivek Kumar, economist at QuantEco Research. Expectation of further moderate weakness would continue to be driven by the combination of the balance of payments deficit and a broad based dollar strength globally, he said.

The trajectory of the rupee depends on two factors, said Aditi Gupta, economist at Bank of Baroda. First and foremost, what happens to the dollar? "With the current global growth and inflation dynamics, we do not expect to see any significant decline in dollar in the next few months."

Second, with the dollar strengthening, it will be crucial to see how the RBI intervenes in the market to support the rupee.

As long as the depreciation in the rupee remains within this zone, RBI may allow the currency to depreciate. "Overall, we do see INR depreciating further, with a lot depending on RBI’s actions," Gupta said. She forecasts the rupee to range between 83 and 85 against the dollar for this year.

However, Ritesh Bhansali, vice president at Mecklai Financial Services, expects the rupee to hover in a range of 82.6 to 83.5 in the near term. "We don't expect rupee to sustain beyond 84 levels as most of the interest rate hikes in the U.S. has already been discounted by the markets," Bhansali said. Also, the depreciation in the rupee has been overstretched in terms of time as rupee is depreciating since April, he said.

The current move in the rupee is an artificial one, which means it won't last for long, according to Heena Naik, research analyst-currency at Angel One. But, global geopolitical tensions may damage the currency in the long run and this week is slightly crucial, she said.

However, the overall trend of USDINR Spot is bullish, according to Naik.

If the USDINR breaks the next key level of 83.40 and closes above it, there is a high possibility for the pair to breach 83.80-84.00 levels, she said. However, on the downside, the key support lies at 82.30 levels, a break of which could push the currency towards 81.50 levels, Naik said.

A Pull Back Next Quarter?

Teresa John, lead economist at Nirmal Bang, also said the worst of depreciation pressure on the rupee in terms of fundamentals is likely behind, with moderation in commodity prices. However, global factors will continue to weigh on the rupee as long as Fed tightening continues.

"In our base case we expect the Fed to end its rate hike cycle and quantitative tightening by end of CY 2022," she said. Consequently, some pullback is expected to 79-80 levels with anticipation of a return of FPI flows into equities in the first quarter of 2023, with the Fed pausing its rate hike cycle, John said. "Beyond that we expect the INR to trade with a normal depreciation bias factoring in depreciation of about 2-3%."