The Indian rupee moved quite volatile for the past week, losing and gaining very frequently. Rise in capital flows helped strengthen the currency on one hand, while month end dollar demand pulled down the gains.
Finally rupee closed the week on a depreciating note as banks unwounded long dollar positions on speculation the Reserve Bank of India (RBI) may raise rates soon. The dollar demand from oil importers and refiners heightened as the month end nears.
The forward premiums on domestic front as well as off-shore (NDF) also showcased significant volatility in during the week-pressuring rupee to trade low. Moreover, the importers jumping in the market to reap-in benefit of lower currency value, after a month.
OUTLOOK
The growing food inflation is raising worries in the market for WPI to stay above the double digit mark for quite a couple of months after it rose to 10.16% in the prior month. The slight delay in monsoon is deterring prices of food articles to fall. Moreover, the rising crude oil prices internationally have forced government to increase the cost of petrol, diesel which would again pressurize higher WPI for months ahead.
India is due to release its imports and export growth percentage figures for the May month (YoY rise). However, the imports had grown by 43.30% in the prior month with exports rising by 36.20%.
The month-end dollar demand from oil importers and refiners is expected to weigh on the currency in the week ahead. The forwards premiums in on-shore and off-shore (NDF's) have risen in the past few sessions.
Week ahead, we expect rupee to trade in sideline with the dollar index. Rise in dollar premiums might cause rupee to loose while weakness in dollar due to disappointing US data releases would help to limit the downside. Technically speaking, we expect rupee to trade sideways.
