Dubai: Indian expatriates in the UAE planning to remit money next week could face rupee appreciation against the UAE dirham resulting in lower exchange rates or the dirham fetching less rupees.
The Indian rupee has gained about 24 paise against the dollar from the middle of last week to the Friday’s close of 74.22 a dollar. That translates to Rs20.21 a UAE dirham.
The rupee’s exchange rate against the dollar gets automatically reflected in its exchange rate against the dirham, because the UAE currency is pegged to the greenback.
Why rupee is gaining?
The recent gains in rupee is the result of heavy buying in domestic equities and weakness in the greenback bolstered US investor sentiment.
Fresh foreign capital inflows into the Indian equity markets also bolstered the rupee last week.
On the domestic equity market front, benchmarks BSE Sensex and Nifty 50 ended the final trading session of the week with gains. S&P BSE Sensex zoomed 593 points or 1.08% to close at 55,437 while the NSE Nifty 50 jumped 164 points of 1.01per cent to close at 16,529 — their highest closing levels ever. Bank Nifty managed to not only breach 36,000 mark but extend its gains to end at 36,169, jumping 0.65 per cent.
Foreign institutional investors emerged as net buyers lsat week in the capital market.
The Indian rupee appreciated against the dollar last week as a slower US inflation rate elevated bets that the Federal Reserve would keep its monetary policy accommodative slightly longer.
Indian rupee is likely to test 76-76.50 levels as a relatively strong greenback, rising crude prices and COVID headwinds deepen the depreciation bias for the domestic currency, according to experts.
Experts are of the view that the short term gains of the rupee against the dollar is not going to last long. On long-term trajectory, the Indian currency is likely to fall towards 75.50-76 level and could even test the 77-mark by year-end, breaching the year’s lowest point of Rs20.54 in mid-April.
Some of the major factors that are going to dictate the trend for the rupee going forward include the Federal Reserve’s outlook on rates and recovery of the US economy.
The Federal Reserve in its last policy meeting was hawkish but the central bank member’s stance on inflation, growth and the bond tapering programme going forward could trigger volatility for the greenback.
On the domestic front, the Reserve Bank of India (RBI) policy statement together with the trajectory of the fund inflows into India will provide cues for the rupee movement. Inflation, which is on the higher side of RBI’s expectation band, will be another factor going forward.
Forex analysts expect longer run trend for the rupee will be weak, on the back of the dollar index stabilizing, higher crude prices and the probability of a third wave hitting India the rest of the world.