American jeopardy: US elections, dollar buying to weaken rupee

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BY ROHIT VAID
New Delhi, Oct 24 (IANS)
Strong headwinds emanating from the upcoming US elections along with stagnating fund inflows for domestic equity markets are expected to weaken the Indian rupee in the near future.
Besides, RBI’s dollar purchase activity along with risk-off sentiment due to higher rate of Covid-19 infections in Western Europe will cap the Indian currency’s gains.
The RBI is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.
“Lately, rupee has not been able to appreciate on back of RBI’s mopping-up of US dollars. This reflects its liking for a weaker rupee,” said Sajal Gupta, Head, Forex and Rates, Edelweiss Securities.
“Dollar index has also softened back to 93 and lower levels. We expect the rupee to trade in this range till central bank wants it. Further weakness of US dollar may make the RBI intervention smaller and might allow rupee to break the 73 barrier.”
Consequently, Gupta expects rupee to range between 73.30 and 73.80.
The Indian rupee had slipped last trade week to close at 73.61 to a US dollar.
“With election day looming in the US, many traders are predicting a ‘blue wave’ election win for Biden and the democrats. There is a belief that a fiscal stimulus package will be followed anyway no matter who gets elected. But a breakdown in negotiations will send the dollar bulls higher,” said Rahul Gupta, Head of Research-Currency at Emkay Global Financial Services.
“Also, the Indian rupee will remain sensitive to any vote-shifting moments ahead of polling day on November 3. Meanwhile, optimism over a Covid-19 vaccine will boost some sentiments, downplaying the need for a fiscal package.”
Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities said, “Covid-19 infections in Germany have risen to a record while Spain’s health minister said that the spread is ‘out of control’ in certain parts of the country. Hospitalisations related to the virus have reached a two-month high in the US. This concerns will help safe haven buying and supporting US dollar.”
“We expect Rupee to remain weak and gradually drift towards 73.7 mark next week.”
(Rohit Vaid can be contacted at rohit.v@ians.in)

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