Rupee unlikely to strengthen more, yuan to rise slowly: Reuters Poll

BANGALORE Fri Aug 8, 2014 2:15pm IST

A cashier counts rupee currency notes inside a bank in Mumbai August 5, 2013. REUTERS/Danish Siddiqui/Files

A cashier counts rupee currency notes inside a bank in Mumbai August 5, 2013.

Credit: Reuters/Danish Siddiqui/Files

Related Topics

BANGALORE (Reuters) - The rupee is likely to struggle to gain any more over the next 12 months as a U.S. dollar rally gathers pace on hopes of a strong economic recovery there, while the Chinese yuan is expected to appreciate a little, a Reuters poll found.

The rupee had a stellar first six months of 2014, rising almost 3 percent, first on expectations of a majority government led by Narendra Modi and then following through on the election result. Between January and July, India's stock market soared 22 percent.

But analysts believe the currency's advance is largely over, for now. A broad rally in the dollar, on expectations the Federal Reserve will raise interest rates in the second quarter of next year, will probably thwart any further gains.

The poll of more than 30 currency strategists, conducted Aug. 4-8, predicted one U.S. dollar will fetch 60.50 rupees in a month, 60.00 rupees in six months and 60.50 rupees in a year. The dollar was trading around 61.59 on Friday.

Those forecasts are largely unchanged from last month's survey and show the reluctance of reluctance of currency strategists to predict large gains even with a surge in net inflows and an improving Indian economy.

Mirza Baig, head of foreign exchange research in Asia for BNP Paribas, expects the rupee to trade in a range, then weaken slightly to 62.00 in a year due to a strengthening U.S. dollar.

"Increased financial volatility and weaker global sentiment will also dominate the rupee in the near-term. And the Reserve Bank of India itself will prevent an appreciation as it buys dollars to shore up currency reserves," he said.

As of July 25, India had foreign exchange reserves of $320.5 billion. Although the volume is quite small relative to the country's size, the RBI has steadily built it up to help cushion the currency from sudden falls.

Although the rupee is not expected to slump back to its record low of 68.80 per dollar in August 2013, a Reuters poll on Wednesday placed a high risk of another sell-off in emerging market currencies over the next 12 months.

That is largely due to a long-anticipated dollar rally taking hold of currency markets in July.

The dollar has strengthened more than 2 percent against a basket of currencies since the beginning of July. The trend will likely continue as stronger economic data feeds expectations of an interest rate hike, which in turn will likely push up U.S. Treasury bond yields.

YUAN TO STRENGTHEN

China's yuan is expected to slowly strengthen over the next 12 months after a sharp slide earlier this year, as markets expect its central bank to be comfortable with a stronger currency as the economy recovers.

The currency is expected to change hands at 6.17 yuan a U.S. dollar in one month, 6.13 yuan in six months and 6.05 yuan in a year. It was trading around 6.16 on Friday.

Those predictions are stronger than last month's poll and reflect the optimism taking hold after recent numbers showed a revival in factory activity. But China's overheated and now rapidly-cooling property market is a serious economic risk.

China's exports in July leapt 14.5 percent from a year earlier, nearly double the expected increase, while imports posted a surprising fall of 1.6 percent, data showed on Friday.

Keeping with the latest strong economic data, the People's Bank of China set a higher midpoint rate of 6.1562 per dollar on Friday and currency traders expect it to keep extending the currency's trading band.

The spot rate is currently allowed to trade 2 percent above or below the midpoint.

(Additional reporting by Shaloo Shrivastava; Editing by Richard Borsuk)

FILED UNDER:
  • Most Popular
  • Most Shared

Pending Reform

REUTERS SHOWCASE

Power Theft

Power Theft

India to invest $4 billion to tackle power theft  Full Article 

Debt Funds

Debt Funds

India monitors foreign flows into debt funds, may tighten rules  Full Article 

Bulgari Back in India

Bulgari Back in India

CEO: we shouldn’t have left India so we’re back  Full Article 

 Hindu "Modi-fication"

Hindu "Modi-fication"

Fears grow about Hindu "Modi-fication" of education  Full Article 

Weak Credit

Weak Credit

Hard to hit tax revenue target, credit weak - Jaitley  Full Article 

China Rate Cut

China Rate Cut

China surprises with interest rate cut to spur growth  Full Article 

Gold Imports

Gold Imports

RBI cautious on response to gold import surge  Full Article 

Economic Corridor

Economic Corridor

China commits $45.6 billion for economic corridor with Pakistan  Full Article 

Overseas Funds

Overseas Funds

RBI says overseas borrowed funds can be parked with banks in India  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage