Wednesday, 17th December was no less than a ‘Sanjeevani’ for the Indian Rupee. The rupee, which was falling against the dollar for the last four days, suddenly gained such momentum that even the market leaders were surprised. After facing consecutive historic decline, the rupee made a tremendous comeback and gained more than 1% in a single day. In fact, the rupee opened weak at 91.07 on Wednesday compared to Tuesday’s level of 91.03. But what happened after this proved to be a big turnaround for the currency market.
Dollar’s ‘U-turn’ due to RBI’s entry
As soon as the rupee showed weakness in the market, public sector banks took charge. According to dealers, public sector banks started selling dollars in large quantities, possibly on the instructions of the RBI. The effect of this was that the dollar, which seemed invincible, suddenly came under pressure. Within no time the rupee strengthened to the level of 90.25.
However, dealers also say that this recovery was not just the result of RBI intervention. The market itself was believing that the price of Rs 91 per dollar had become too high. Technically speaking, the market was in the ‘overbought’ zone, which means there was scope for improvement.
Not only RBI, dollar’s back broken due to these two reasons also
There were two more big reasons behind this spectacular return of the rupee. First, the softening of crude oil prices reduced concerns about India’s import bill. Second, when traders saw that the dollar was stuck at the 91 level and felt resistance, they started cutting their ‘long positions’ (deals to buy dollars).
Neeraj Seth, founder of 3R Investment Management, believes that in the last few months, foreign investment (flows) have not come as expected and the delay in the trade deal with America had also made the market tired. He says, “RBI is now in a mood to tolerate some volatility in the market, instead of strictly controlling every small movement.
Will the rupee be able to stay at the level of 90?
Kanika Pasricha, Chief Economic Advisor of Union Bank of India, believes that the rupee crossing 91 was not fundamentally right. He said, “We expected the rupee to remain between 89-90. Going beyond 90 was an ‘overshoot’. The presence of RBI has taken care of the market and the rupee may come back to a logical level of 90 or below by March.
At the same time, according to senior Forex expert KN Dey, the end of the year is about to come and at this time the liquidity (flow of money) in the market reduces. In such a situation, even small deals can bring big ups and downs. He advised that real stability can be seen only from the second fortnight of January, when foreign investors return from holidays.
