Indian rupee at 4-month high

Many an Indian expat were in for a rude shock yesterday when they casually strolled in to remit their monthly dispatch.

Having gotten used to Rs15-plus exchange rate against the UAE dirham for four months now, Indian expats across the world have had a fairly good run recently.

With the Indian rupee making successive lifetime lows in the past months, the expats’ dirhams, dollars and dinars have been earning them more rupees than they ever have.

However, that seems to have changed over the past few days, with the rupee turning around and rather strongly, reaching a four-month high of Rs14.70 against the UAE dirham on Friday, September 14, 2012. The last time the rupee saw this level was on May 15, 2012, when it closed at Rs14.69 versus the dirham.

Since then, however, it declined sensationally, plunging to an all-time low of Rs15.55 on June 23, 2012. Even as the rupee has recovered about 5.5 per cent since then, it is still some way from the strongest it has been this year. That was on February 4, when it scaled a 2012 high of Rs13.23 – a level Indian expats would be hoping it doesn’t reach again.

Whether or not the rupee will scale those levels – and beyond – actually depends on a handful of key factors. One of the primary factors for rupee’s sudden rise over the past week has been the dollar’s sudden decline.

Foreign exchange is a zero-sum game, as any forex expert will tell you (and we don’t mean any India expat remitting money on a monthly basis, although tracking the rupee’s fortunes is a daily obsession for some).

Now, the US Fed has more or less indicated that QE3 will soon be launched in its fully fledged avatar, which in turn means that more dollars will need to be printed to fire up the sagging engine of American economic recovery.

So, if the US dollar is weakening, it has to weaken against other currencies – the euro is a major one, as is the pound sterling – both of which have jumped 3.2 and 1.7 per cent, respectively, against the US dollar (and, therefore, the UAE dirham) within the past week.

The Indian rupee too has been a beneficiary, swelling up nearly 3 per cent against the dollar-dirham duo in the past week itself.

Another factor that has given a booster does to the ailing Indian rupee was Indian policymakers’ bold step taken late Thursday to slash diesel subsidy and raise its prices by 14 per cent. If the move sticks (drama on the street has made the Indian authorities roll back such moves on numerous occasions in the past), it will help the government at least partially control a ballooning budgetary deficit.

Analysts are positive on the rupee’s fortunes going forward, as they believe that the imminent launch of QE3 will see further decline in the dollar’s fortunes, and thus prop up the rupee, among other currncies.

Additionally, India’s Cabinet cleared long-held proposals on foreign direct investment in multi-brand retail, aviation and broadcast-carriage services on Friday, and traders expect the full extent of that move to be felt tomorrow, when the forex markets reopen after the weekend.

In a move that will negatively impact India’s airlines but will help bridge some of the fiscal deficit, jet fuel price was raised by about 2 per cent close on the heels of the diesel price hike and a massive 7.6 per cent hike in jet fuel announced just two weeks ago, on September 1.

Traders expect the dollar to fall further tomorrow – so if you’re looking to remit money to India, the rate may become less favourable tomorrow.

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