Nov 29 2018

Rupee is Reverse Ageing…

…and it is looking good on her.  For the first time in close to 14 weeks, Indian Rupee moved above 70 (USD/INR below 70) during the market hours today.

Reverse ageing must look good on anyone but Rupee’s reversal is not only looking good on her but Indian economy will enjoy the reflected glow(ry) too.  For country with a current account deficit and burgeoning capital and debt market woes, a stable to strong currency is relief. And no, a depreciating currency doesn’t necessarily result in export boom.

So what changed the tide? With so much going on locally  – banking and financial institution being in a mess, equities meltdown, elections, ongoing spat between Government and RBI, to name a few and globally the trade war, Italian budgetary issues, UK dragging it’s feet on Brexit and Federal Reserve marching ahead with rate hikes and add to it the other geopolitical stress – speculators had taken the Rupee to a 100 in their wicked minds.  It has been struggle for the local currency but Rupee wasn’t alone.

Crude coming crashing down is one major factor for Rupee’s reversal. Also the temporary exemption we got from ban on importing oil from Iran is good news. Dollar index itself looks close to toppish and if the interest rates in the US is just below neutral and wouldn’t move as fast from hereon, upside to dollar index seems limited. This would also push the investors to look for alternate assets and emerging markets look poised to benefit from this.  Rupee’s recent appreciation may also have political will backing it.

We still have the elections looming locally and Trump ruling globally – so I won’t dismiss downside risk to Rupee.  Importers should look to cover 1-3 months using options to take advantage of this 5-6% reversal.  Tread cautiously!