InvestorQ : Do you see the rupee weakening beyond Rs80/$ in the near future?
diksha shah made post

Do you see the rupee weakening beyond Rs80/$ in the near future?

Dilmini Mercia answered.
8 months ago

That is perfectly possible and in fact it also looks quite likely. The futures prices are not yet pricing in that but futures normally only price the near month accurately and beyond that it is more of conjecture. In this case, there is also a non-controllable factor. The problem is not the weak rupee but it is the strong dollar. That is manifested by the Bloomberg Dollar Index (DXY), which has rallied from 93 level to 105.50 in the last 1 year to scale a 20 year high.

The dollar index surge is a function of the hawkishness of the US Federal Reserve. The Fed plans to hike rates to 3.5% by end of 2022 and to 4.25% by middle of 2023. This is much more aggressive than what we though likely just one month back. That will most likely result in a surge of flows into dollar assets making the dollar stronger. For the time being, the risk to the dollar index comes entirely from the hawkishness of the US Fed.

Let me now address the question of whether the rupee can go beyond 80/$. In the last few weeks, reputed forex analysts like Jamal Mecklai have underlined that 80/$ was perfectly possible and even likely at a time when the Fed looks likely to walk the talk on rate hikes. On the Indian side, the RBI has a problem of dwindling reserves, which have fallen from $647 billion to $594 billion, which limits intervention. Obviously, the RBI will not try too hard and intervene too long in the dollar market, especially if it goes against fundamentals.