Rupee, which depreciated more than 9 percent against the USD in 2018, is likely to hover in the range of Rs 70-72 against the US Dollar, according to a poll conducted by Moneycontrol.
We spoke to 15 analysts, fund managers and money managers last week to assess the sentiment and get some idea of what to expect in 2019.
As many as 47 percent of the poll respondents feel that the currency is likely to hover in the range of Rs 70-72 against the USD, while 27 percent of them feel that the currency could depreciate towards Rs 72-74/USD in 2019.
Almost 13 percent of them feel that rupee could depreciate towards Rs 74 against the USD and the rest 13 percent are of the view that the currency could hover around the current level of Rs 70/USD in 2019.
On a year-over-year basis, rupee depreciated by a whopping 509 paise, or 9.23 percent, in 2018. At the end of 2017, Indian currency was trading at the level of 63.87.
Rupee got impacted by various factors such as movement of crude oil prices, which hits fiscal deficit, US-China trade tensions, hike in US interest rates, and domestic factors such as NBFC crisis showdown between the government and the central bank.
The resignation of the Reserve Bank of India’s governor and BJP's poor performance in state elections also weighed on rupee briefly. However, global factors dominated for the most part of the year, suggest experts.
“Rupee depreciated by over 9 percent in 2018 against the US Dollar. However, it is not the worst performing currency in 2018. The Turkish Lira depreciated by almost 40 percent,” Pritam Kumar Patnaik, Head - Reliance Commodities told Moneycontrol.
“Apart from global factors, the rupee will be impacted by the impending election season in the first half of 2019. If any party forms a government with a decisive mandate, along with a manageable crude level and better than expected economic growth and Macros, it could lead to the strengthening of the currency,” he said.
Patnaik further added that we remain cautious on the Rupee in 2019 and keep our yearly forecast within a range of 70-74 against the US Dollar.
Persistent current account deficit, net capital outflows and strength in Dollar Index in the earlier part of the year in 2018 were the key reasons for the fall of rupee towards 74 in August, but the currency recovered as macros stabalised.
“We have seen rupee strengthening towards 70 mainly on crash in crude oil prices from $75 to $46 (WTI) and expectations of fewer U.S. rate hikes in 2019 by FED,” Priyank Upadhyay, AVP Commodity Research, SSJ Finance & Securities told Moneycontrol.
Technically, rupee has broken the level of 69 after 5 years of consolidation. We made a high of 68.90 in 2013 then we attempted to break that top in Feb 2016 when it made a low of 68.78 and again we made a low at 68.85 in Nov 2016 but could not break above 69.
“It is only in June 2018 that we were able to break past 69 and we saw a sharp fall towards 74 by Aug 2018 and now we have retraced back to the old break out level of 69 which could now provide support and in 2019,” said Upadhyay.
“We could again see rupee weakening towards 74 and break above 74.50 could lead to further weakness towards 78/80 zones, the risk for this move will be at a close below 66,” he added.
Abhishek Goenka, Founder, and CEO of IFA lists out seven factors which are likely to impact rupee in 2019:
Political Stability:
General elections onshore will be of great significance especially to foreign investors, both FDI as well as FPIs. Political uncertainty does not go down well with markets. Brazilian real in the lead up to the general elections this year being the case in point.
US yield curve:
The latest high-frequency macroeconomic data from the US has been showing signs of weakness. If the weakness in data continues it could sour the global risk sentiment.
Weakness in stocks and ensuing negative wealth effect could further stifle economic growth. The US yield curve inversion has been a reliable predictor of recessions in the past. The 2s5s segment of the yield curve has already inverted.
US-China trade tensions:
US-China trade tensions seem to be having an impact on Chinese growth already. Weakness is evident particularly in the manufacturing sector. If there is no resolution to the trade conflict within the 90-day timeframe agreed to between the US and China, it could further dampen the global risk sentiment.
Weak growth in China impinging on heavily levered corporates' ability to repay could be catastrophic. Depreciation in the Yuan against USD could be steep beyond the psychological level of 7 and this could stoke the next round of weakness in EM currencies.
Deglobalization:
Nationalist movements and protectionist and populist policies (Deglobalization) as we have seen recently in France and Italy also pose a significant risk to the global economy in 2019
Mueller investigation:
The progress of the Mueller investigation into Trump team's collusion with Russia to sway the 2016 US presidential elections will also be followed closely by the markets. The investigation could gather steam with the Democrats reclaiming the House of Representatives.
Crude Price:
Crude, of course, would be a major factor too. The elasticity of Rupee to crude is expected to remain low as long as Brent is below USD 70 per barrel. Break above 70 would spook the Rupee.
Technical Outlook:
Despite lower crude prices, most other risk factors seem skewed against the Rupee at this point. We, therefore, expect the primary uptrend in USD/INR to continue. We expect the Rupee to trade broadly in a new range of 68-76 against the US Dollar in 2019 with a weak bias.
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