Indian Rupee at 4-Month Low against the US Dollar ? RBI may Encourage the Decline

On Monday the Indian Rupee brushed a four-month low of 63.77 against the US Dollar despite demand for the North American currency remaining restricted ahead of this week’s Federal Open Market Committee (FOMC) announcement. The US may have published a stream of below-forecast ecostats – upping the odds of the Federal Reserve delaying an interest rate increase and piling pressure on the ‘Greenback’ – but the Rupee has still softened against its US rival.

The main causes of the Rupee’s declination have been domestic monsoon concerns, weak earnings, rising oil prices and tax issues, but some investors believe that the Reserve Bank of India will welcome the currency’s fall and do little to stop to it. Analysts are anticipating further declines for the Rupee, which would see the asset slip to the 65 Rupee per Dollar level, although this may fail to materialise if the Federal Reserve pushes interest rate hike expectations back beyond the close of 2015.
According to one industry expert; ‘We have been trading the 62-63 rage for pretty long now as a lot of complacency had come into the markets, maybe due to the RBI intervention. When the Rupee is moving on the other side, we do not see such an aggressive intervention. So the chances of Rupee moving, weakening from these levels looks fairly obvious now.’

Indian data with the potential to trigger Rupee movement this week includes Thursday’s domestic infrastructure output number and Friday’s Foreign Reserves/Deposit Growth and Bank Loan growth figures. Investors with an interest in the Rupee will also be looking to the Federal Open Market Committee’s policy announcement. Any hints from the Federal Reserve that borrowing costs will remain on hold for the foreseeable future would see the US Dollar soften and lend support to emerging-market currencies. Next week India is set to publish some slightly more influential economic reports, in the form of HSBC Manufacturing and Services PMI. While the measure of the manufacturing sector is expected to show improvement and rise from 52.1 in March to 52.35 in April, the services gauge is believed to have dipped from 53.0 to 51.0 in the same period.