Rupee At 80, What Next? What The Experts Are Saying...

When the U.S. dollar rally went into overdrive last week, it left a trail of destruction across the forex market. Concerns that the global economy is sleepwalking into a recession as interest rates are being raised at full speed and government spending is rolled back are pushing nervous investors into the safety of the reserve currency. Every other major currency was shaken. The euro has been demolished by the European energy crisis. That continent has been deprived of its main weapon, a healthy trade surplus. The yen has been knocked over by the Bank of Japan's refusal to consider higher rates, while the British pound sterling has transformed into a mirror image of stormy stock markets. And despite measures by the Reserve Bank of India, the rupee hit 80 to the dollar for the first time this week. The dollar index strength also means that gold and the likes are continuing to get badgered. Sure, gold will come back into the reckoning soon, as it always does. For now, though, there are dollar blues across shores.

These blues are being recognised by people across the board, with very different thoughts on the rupee and the dollar strength.

Veterans like Uday Kotak have extensively articulated some views around the dollar strength on social media. On Twitter, Kotak spoke of the strength of the U.S. dollar, and how other emerging markets economies need to be cognizant of that strength and guard against the risks posed by the strong dollar.

€ at 1:1 to $.Gold, crypto, pound and yen crumble.The supremacy of US currency. Emerging market countries need to be alert.Some of the biggest risks emanate from currencies and can destroy some countries.Look thy neighbours Lanka and Pakistan. https://t.co/KRcO2XnqiA

Macro watcher and a veteran of the money markets, Maneesh Dangi of Macro Mosaic, who went short on the rupee at levels of around 75 to the dollar, believes that while an outright short call on the rupee from the current levels may not be the best idea, but there is a high probability that the rupee may depreciate further vis-a-vis the dollar.

My bet for the last 6 months has been short INR and long dollar persists. There are both sides of the arguments, and it is not an outright sell call on the rupee, but it still merits that a significant proportion of an investor's balance sheet should be in US dollar and dollar-denominated assets.

Maneesh Dangi, Founder-Macro Mosaic Investing & Research

Dangi says that aside from technical pullbacks in seemingly a technically overbought dollar, there is a fundamental construct to a probable pullback in the dollar strength. There is a narrative building that we may centre on a soft patch for inflation and there might be a cyclical peak in the United States, meaning that the Fed backs off a bit from its policy noise, says Dangi. But a persistently higher crude in 2023 might surprise dovish bets on inflation and risk assets. Dangi also believes that the non-dollar trade between countries does not impact the dollar strength too much, because the dollar trade is a very large one, and these bilateral trades currently are very small foundational trades, and while they may have an impact 10-20 years down the line, this may not impact the dollar strength.

Brokerages like Elara Securities believed that the rupee will trade in a range of 79-80.5.

"Recently, a sharp rise in the trade deficit and shift in the RBI's intervention strategy has accentuated the decline in the INR. The RBI has been intervening in the currency market via two legs – Spot and buy-sell swaps. This is helping preserve forex reserves and maintain Rupee liquidity. This, however, has led to a fall in the onshore forward premia, increasing Rupee's weakness much against our expectations. Amid such developments, we see USD-INR trading in the band of 79-80.5 (77.5-78.5 previously), in line with weakness in EM peers and recent changes in the forex strategy."

Aishvarya Dadheech, Fund Manager, Ambit Asset Management believes that the fall is an overreaction.

“Global risk aversion has led to rupee depreciation against the dollar; however, the decline is pretty tolerable. Even though the rupee touched the psychological mark of 80 per dollar, the rupee has indeed appreciated against the majority of leading currencies like the Euro, Pound Sterling, Yen etc. Forex reserves remain at healthy levels and recent measures by the RBI will help overcome the dollar shortage. Fundamentals of the rupee are intact and the recent correction (due to global risk-off sentiment) is an overreaction. We believe the rupee will remain range bound and foreign investors will see this as an opportunity, and will be tempted to lock in at these levels.”

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