Anindya Banerjee, associate VP for currency derivatives at Kotak Securities, says the rupee “in 1-2 months rupee could see levels of 69-69.30 against the dollar. Over 7-8 months, we could see 70.50-71.”
The rupee has fallen over 3 per cent since Mr Trump’s victory. There are expectations that inflation would rise in the US if the president-elect follows through on a pledge to spend big on infrastructure and cut taxes. Strong US economic data has also increased the probability of a rate hike from the US central bank next month. Federal Reserve Chair Janet Yellen has already signalled that the US central bank was on track to raise interest rates soon.
The dollar index, which measures the greenback against a basket of six major currencies, has surged to nearly 14-year high, bolstered by expectations that the Federal Reserve would hike interest rate next month and in 2017. US bond yields have also risen to multi-year highs, making dollar-denominated assets more attractive to investors and thus sparking outflows from emerging market assets. “At this point of time, the overarching theme for the rupee is what is going to happen to the US dollar overseas,” said Mr Banerjee. “The biggest narrative what is going the support the dollar in 2017 is already playing out.”
“With Trump being the new president, the focus is likely to be on infra push, deregulation and tax cuts. All this means it is good for the US equities and dollar,” said Mr Banerjee.
The dollar is likely to remain strong till the first half of the next year, he said.
Foreign investors have sold Indian stocks worth nearly Rs. 13,000 crore since November 8, putting further pressure on the rupee. Indian stock markets have also seen a selloff following demonetisation of high currency notes. Many brokerages have lowered their GDP growth forecasts, fearing hit to the Indian economy in the near term.