NEW DELHI: After months of wild volatility in the rupee, India’s widening trade deficit and elevated commodity prices are bearing down on the currency, reinforcing a recent downward bias and pushing it towards a new low for the year.
That is the view of traders who have seen the rupee whipsaw from being Asia’s best performer in the first quarter to its worst in April when another wave of Covid-19 infections took hold, report agencies.This volatility and the prospect of tapering by the US Federal Reserve have also reduced the attractiveness of India’s currency for carry trades, adding to the headwinds it is facing.
“We expect oil and broader commodity complex prices to remain elevated in the short term, which will weigh on India’s trade balance,” said Parul Sinha, head of Indian financial markets and macro trading for South Asia at Standard Chartered.
“We maintain a bearish view on the rupee.”
Standard Chartered and RBL Bank forecast that the currency will depreciate to 76 rupees per US dollar by the end of the year while their peers at Deutsche Bank have a slightly less pessimistic projection of 75.