Dubai: For Indian expats in the UAE it is turning out to be the time to remit as the value of the Indian rupee dropped by 15 paise against UAE dirham on Wednesday. It reversed after two straight sessions of gains.
Dubai-based forex analysts opined that the currency was expected to weaken further on higher crude oil prices and a stronger dollar in overseas markets. Check the latest UAE money transfer exchange rates here.
After closing at Dh20.25 against the UAE dirham on Tuesday, the rupee rate was at Dh20.40 on Wednesday, indicating a bigger-than-expected drop in the coming sessions.
The currency reversed after gaining for two straight sessions on the Indian Budget, which unravelled on Tuesday, February 1, 2022. The Indian rupee had been indicating signs of weakening in the weeks that preceded the Budget.
Rupee to weaken further?
Geo-political tensions in Europe as well as rising crude oil prices are likely to weaken the Indian rupee, analysts reminded. Geo-political tensions emanating from the Russia-Ukraine conflict had earlier this week spooked investors in India's equity markets, thereby triggering massive fund outflows. However, markets were seen recovering.
As per estimates, till now in January 2022, the Foreign Institutional Investors (FIIs) have sold over Rs300 billion worth of equities due to various global factors, including the US central bank's plans to tighten its monetary policy.
(FIIs directly impact the stock/securities market of the country, its exchange rate and inflation. FIIs can invest in listed, unlisted, and to-be-listed companies on the stock markets, in both the primary and secondary markets.)
Notably, any rate hike by the US Fed drives away FIIs from India and other emerging markets. Consequently, the rupee is expected to trade with a weak bias up to 75.50 to a US dollar this week.
"A hawkish US, crude oil at $90 per barrel and non-stop selling by foreign portfolio investors (FPIs) (financial assets held by investors in another country) took their toll on the Indian rupee, but still we saw orderly depreciation unlike in the past," said Sajal Gupta, Head, Forex and Rates, at India-based Edelweiss Securities.
"Even though high reserves give comfort, fundamentals suggest more weakness ahead. Crude oil is signalling a move above $100 per barrel," Gupta added. Last week, the rupee weakened to 75.30 levels before closing at 75.10 to a US dollar.
Forex reserves fell
Besides, the latest data showed that India's foreign exchange reserves fell by $678 million during the week ended January 21, 2022 to $634.287 billion from $634.965 billion reported on January 14.
(Reserves act as a shock absorber against factors that can negatively affect a currency's exchange rate, so a nation's central bank uses its currency reserves to help maintain a steady rate, buying or selling depending on which direction they want exchange prices to go.)
"Going ahead, all eyes will be on the Union Budget in which announcements related to global bond inclusion are expected, which could bring huge foreign inflows. As per estimates, inclusion in global bond alone can bring yearly inflows of $20 to $25 billion," said Dilip Parmar, Research Analyst at India-based HDFC Securities.
"In coming week, rupee is expected to stay volatile with bearish bias. The local currency is expected to oscillate in the range of 74.60 to 75.50," Parmar added.
"At the same time, ECB and BoE will be releasing its policy statement and expectation is that both these central banks could be a little hawkish." Somaiya also said the momentum for USD-INR is expected to remain positive in the range of 74.50 and 75.50.
- With inputs from IANS