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Are good times ahead for Indian Importers?

Author: Bharath Sunnam/Wednesday, May 30, 2018/Categories: Currency

Are good times ahead for Indian Importers?

Creeping US Treasury yields, surging oil prices and continuous foreign capital outflow were the major concerns for the weakening rupee in the recent past. However, the worst may be over.

US 10-year Treasury yields surged to 3.122% in May, its highest level since July 2011. Expecting higher US inflation, investors are preparing for at least two to three rate hikes by the Federal Reserve.

Brent crude oil futures jumped above $80 during the previous week. Higher demand expectations and fresh US sanctions on Iran and Venezuela supported the crude rally.

Worried over India’s widening fiscal and current account deficit, foreign investors withdrew Rs 29,130 crore in 2018 after infusing almost Rs 2 lakh crore in 2017. The debt market witnessed more selloff than equity. Foreign investors have pulled out Rs 29,761 crore from the debt market in 2018. Major selloff in the debt market started in February 2018.

However, after being bruised and battered, the Indian rupee clocked its biggest single-session rally, surging 56 paise to close at 67.78 against the US dollar on May 25. US treasury yields started to correct from seven-year highs and crude oil prices fell sharply by over 3-4% during the weekend amid easing supply fears.

After a strong correction in US yields and crude prices, foreign capital outflow is the next major concern for the rupee. While there is no change in the fundamentals of the economy, the Indian rupee might reverse its direction as yields and crude bounce back further. Importers who couldn’t accumulate dollars at lower levels might jump in to buy once there is a minor correction which may further push the dollar to higher levels again.

The author is a Fundamental Research Analyst at Karvy Forex and Currencies Pvt Ltd

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