Stock - India Economy - Rupee
Will this week see a remittance rush? For Indian expats, the rupee's drop is perfectly timed ahead of salaries getting credited to bank accounts. Image Credit: Bloomberg

Dubai: The Indian rupee has dropped to its lowest point this month, as emerging market currencies again feel the impact from the US signalling a rate hike in March. Early on Thursday, the rupee is at 20.35-20.46 levels to a dirham, with analysts talking about a drop to 20.60-20.70 levels. The official rupee-dirham exchange rate was at 20.29 to a dirham at Wednesday’s close.

The latest rupee weakness opens a remittance window for Indian expats in the UAE as they await their January salaries. Plus, there is also the Indian federal budget to be announced on February 1, which could trigger its own dynamics on the rupee’s short-term movements.

“The next level Indian expats will be waiting for is 20.60 to the dirham – the signs are there as global currencies are weakening and the dollar index gaining after the US Federal reiterated its rate stance on Wednesday,” said Antony Jos, Managing Director at Joyalukkas Exchange. (The dollar early Thursday is at the 75.19 level, and expected to move up to 76.05 short-term.)

More than the Fed, the February 1 budget will likely have more of a say in determining the rupee’s prospects. Current levels are seen as favourable to India’s exporters, and at a time when the economy is poised for some serious growth, Indian monetary policymakers will not want a stronger rupee.

“Anything between 20.00-20.60 to the dirham would be a comfortable rate for all,” said a currency analyst.

It goes without saying that Indian expats too would find these levels quite comforting.

EM currencies await the rush from US rate move
Emerging market currencies have been battling high inflation and already been delivering fast rate hikes that have been doing little to quell pricing pressures. The fear for emerging markets is that the Fed may grow extremely aggressive in tackling inflation - but at most they will bring interest rates to neutral which is somewhere around 2.50%.

The dollar was king for all of 2021, but that story will likely change after that first rate hike in March. The dollar will struggle as the growth story abroad will dominate investment.

EM currencies that have geopolitical risks will likely be the first ones sold. The Turkish lira is becoming a favorite short given all the geopolitical risks and unorthodox monetary policy. Countries that are commodity-rich may have a strong year as global demand for crops, electric vehicle metals, and crude are expected to be robust.

- Edward Moya, Senior Analyst at the FX consultancy Oanda