Fears of slower global recovery, US polls to weaken rupee

The continuation of the pandemic in absence of a vaccine is creating havoc and is playing out in the Fx market. The fear that economic conditions are going to get worse before they get better, is keeping the dollar strong against EM currencies

New Delhi: Fears of a slower global recovery due to rising cases of Covid-19 infections in Europe and the US will cast pressure on the Indian rupee next week. Additionally, the rupee is expected to get weaker on account of uncertainties prevailing on the back of upcoming US Presidential Election which will be held on November 3.

“The continuation of the pandemic in absence of a vaccine is creating havoc and is playing out in the Fx market. The fear that economic conditions are going to get worse before they get better, is keeping the dollar strong against EM currencies,” said Rahul Gupta, Head of Research-Currency at Emkay Global Financial Services.

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“Adding to this mood is the uncertainty of the US presidential election outcome. So, next week the chances of USDINR trading above 74 are higher and expect the spot pair to trade within 73.50-74.50.” The Indian rupee closed last week at 74.11, its weakest level in two months.
“Next week, US elections will take centrestage. Democratic candidate, Joe Biden is projected to win the race comfortably based on the current polls and leads. Also based on the current polls there is a likelihood the democrats could win both the House and Senate. This will be huge blue sweep for the and that will drive policy changes,” said Devarsh Vakil — Deputy Head of Retail Research at HDFC Securities.

“Their stated economic positions suggest that dollar could weaken in the medium term, which could drive commodities and emerging market equities higher.” Besides, major economic data points such as automobile sales figures for October and ‘Purchasing Manager Index’ will further guide the currency’s movement.

The foreign fund inflows into the country’s equity markets are greatly influenced by these macro data that show the health of the economy. Consequently, the flow status of foreign funds also impacts the rupee’s movement.

According to Sajal Gupta, Head, Forex and Rates, Edelweiss Securities: “Just before US elections rupee and equity became wobbly and some people may have booked profits before the event. Rupee has weakend to 74.50 levels. It has traded comfortably above the 74 handle.”

“Expect the rupee to be volatile and trade in wider range of 74 to 75.20 with some more depreciation risk.”