Analysts have one dirham buying Rs11.76 by year-end
A continuously strengthening Indian rupee will pinch expats from the country, who will have to spend more dirhams for remitting the same amount of rupees by the end of the year, analysts say.
According to Vassili Serebriakov, Currency Strategist at Wells Fargo Bank, the Indian rupee has been "trailing behind its regional peers" and that he expects "the rupee to sustain a moderate upward trajectory" against the US dollar, to which the UAE dirham is pegged.
Thomas Harr and Callum Handerson of Standard Chartered Bank share his opinion, and maintained in a report issued this morning that "[w]hile volatility may persist in the near term in the wake of US growth concerns, we forecast another leg lower in the US dollar amid worsening fiscal risks and the Fed's pledge to not raise rates until mid-2013."
While Wells Fargo Bank forecasts the USD/INR exchange rate at 44.25, 44.00, and 43.75 in three, nine and 15 months, respectively, Standard Chartered Bank has a short-term 'overweight' forex rating on the Indian rupee, and forecasts USD/Rs at 44.00 by end of the third quarter, and 43.50 by year-end.
If the StanChart forecast is extrapolated, the UAE dirham, which buys approximately Rs12.20 today, will only yield Rs11.76 by year-end.
Analysts, however, see downside risks to the rupee stemming from volatility in equity flows and maintain that there might be volatility in the exchange rate.
"Short-term technical indicators for USD/Rs are mixed," the StanChart experts say.
Nevertheless, they maintain that India's slower GDP growth "appears to be largely priced in and inflation expectations may peak soon," which will strengthen the local currency.
"This bodes well for sentiment and is likely to trigger a more durable relief rally in local equities, increasing appreciation pressure on the currency. At the same time, the rupee is expected to benefit from high yield differentials," the experts maintain.
"Market positioning in USD/Rs is light. This could trigger a wave of long liquidation, leading to a sharp move lower in the pair. Hence, we take this opportunity to sell USD/Rs," Standard Chartered suggests.
While that may be sound advice for forex investors, for expats that need to remit a fixed amount every month for their mortgage payments or other debt, the coming few months do not augur much hope.
© Emirates 24|7 2011
