Concern over US Federal Reserve lifting US interest rates coupled with pressure on emerging markets due to China yuan devaluation dampened market sentiments in the past two years.
Of late, a massive outflow of foreign funds on the back of stricter participatory notes (P-notes) and renewed possibility of the Fed raising interest rates as early as June further impacted Indian currency. On Tuesday (May 24), rupee continued to fell for the ninth straight day.
The Indian rupee on Wednesday was trading higher by 20 paise against the US dollar in early trade on fresh selling of the American currency by exporters and banks amid a higher opening in the domestic stock markets.
Naveen Mathur, associate director, currencies and commodities , Angel Broking, said, “If Federal Reserve raise interest rates in June, we may see some knee-jerk reaction. However, the rupee will stay in the range of 67.50-68 levels by December-end. It is very unlikely that it will cross 70-mark this year.”
In the past two years, the dollar index climbed 19 per cent to 95.56 on May 25, 2016 from 80.45 on May 26, 2014.
Madan Sabnavis, chief economist and general manager, Credit Analysis & Research said, “There are two set of reasons for rupee depreciation in the past two years. Fundamentally, current account deficit is improving and trade balance is looking better. So the current volatility in the Indian rupee is due to FII inflow. On the other hand, Federal Reserve interest rate hike worries and improvement in dollar index put rupee under pressure. We can see gradual depreciation in Indian rupee from here onwards and it can fell towards 68-69 levels in normal condition by December-end. If there will be sudden spike in crude oil price then it may cross 70-level this year.
In the past one year, foreign institutional investors (FIIs) offloaded Rs 16409.70 crore from the Indian equity markets.