Rupee to trade in 81-84 range against US dollar through June, says expert
2 min read 20 Feb 2023, 02:58 PM ISTBNP has a year-end target of 80 to the US dollar
PremiumThe Indian rupee is expected to trade in a range of 81-84 against the US dollar in the next quarter, with the Reserve Bank of India (RBI) continuing to play a pivotal role in managing volatility, BNP Paribas India's head of global markets, Ashutosh Tikekar has said.
"Essentially, the RBI plays a critical role. Unless there is a massive dollar-strength story or a big equities selloff coupled with US rates moving higher, we feel the RBI will look to smoothen excess volatility on either side," a top treasury official at BNP Paribas told Reuters.
"So, we are at 81 to 84 for the next quarter," Tikekar added.
BNP has a year-end target of 80 to the US dollar.
The central bank has bolstered its foreign exchange reserves when the rupee has rallied and sold dollars when required to prevent the local currency from falling near its record-low of 83.30, several market participants believe.
The RBI will continue to do so and, in the process, dampen volatility, Ashutosh added.
Tikekar reckons that one of the important variables for the rupee in 2023 will be that the dollar index-strength story "will go away" and the dollar will weaken as compared to its major peers.
This, Tikekar believes, will happen as the correlation between the US Federal Reserve's rate hikes and the dollar "will be weaker and weaker" to the extent that the currency's strength will "not be proportionate" to rate hikes.
The top treasury official at BNP Paribas expects emerging market currencies "in general" to strengthen.
BofA Securities turns bullish on rupee
Bofa Securities is predicting more gains for rupee in the near term, joining Citigroup, as the narrowest trade deficit in a year augurs well for the nation’s external finances.
Abhay Gupta, a strategist at BofA Securities, said in a note: “The recent correction in rupee valuation and near-term improvement in current-account and capital flows tilt the risk-reward in favor of rupee appreciation." The company has turned ‘constructive’ on the local currency.
The “rupee’s carry-to-vol is attractive within EM, RBI’s reserves have recovered, REER index declined and INR volatility is lower," Gupta noted. “Debt inflows have started to trickle-in as India bonds still offer better carry compared to the region with low currency volatility," he further said.
Last week, Citigroup in a note recommended a tactically bullish relative rupee exposure as it expects seasonal outperformance and the rupee’s nominal effective exchange-rate to strengthen into the end of its fiscal year.
On USD-INR outlook, Anand James, Chief Market Strategist at Geojit Financial Services, said, "Expect initial slippages to be contained near 82.69, followed by upswings to 82.95. Alternatively, a breach of 82.69 could call for 82.43."
Till now, the local currency has been in a range of 80.88-82.94 in 2023, likely helped by the the central bank's interventions.
Earlier this month, RBI Governor Shaktikanta Das said that the rupee was one of the least volatile Asian currencies in 2022 and remains so.
