The rupee is seen appreciating to level beyond the Rs 60 per dollar this week if the election poll outcome is as per the Street’s expectations.
The main opposition National Democratic Alliance (NDA) is leading in opinion polls. This is as per the expectations of the Street based on which currency experts see the rupee hitting Rs 58-59 per dollar.
The rupee ended marginally strong on Friday after hitting one month high due to dollar buying by the Reserve Bank of India (RBI).
According to currency dealers RBI has been doing a sell/buy swap in the forward market to reduce the impact of its spot intervention on rupee liquidity. Currency dealers also said that due to this dollar forward rates have been climbing up in the last few days.
“If there is a decision mandate in line with market expectations, rupee could appreciate to level of Rs 58 per dollar. Below this level even if it goes it may not sustain. But the decision mandate can put a strong cap of Rs 61 per dollar beyond which the rupee may not depreciate,” said Mohan Shenoi, president – group treasury and global markets, Kotak Mahindra Bank.
The rupee ended at Rs 60.03 on Friday compared with previous close of Rs 60.06 per dollar. There are speculations in the market that the world’s largest democracy will elect a government capable of reviving economic growth which slowed down in recent years. This is helping to attract dollar flows into domestic markets.
“Safe haven investments like gold and dollar are taking a beating because investors are ready to take risk and invest in riskier asset classes. Supply of dollars will continue which would lead to appreciation of the rupee,” said Ashutosh Khajuria, president (treasury), Federal Bank.
Since volatility in the rupee is seen increasing this week, corporates are taking a cautious approach. “The trend which we have seen among corporates is that whatever positions they have in the foreign exchange market, they are hedging it substantially before the election outcome. People who are not comfortable hedging it through forwards are going for options,” said Abhishek Goenka, founder & CEO, India Forex Advisors.
Meanwhile, government bond yields are seen falling this week as the Street believes flows from Foreign Institutional Investors (FIIs) shall pick up in debt instruments. “The yield on the 10-year bond may fall to 8.70% due to FII flows in debt,” said N S Venkatesh, executive director and head of treasury at IDBI Bank.
The yield on the 10-year bond ended at 8.75% on Friday compared with previous close of 8.76%.