This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Indian Rupee Outlook Pessimistic

By Illan Solot for BBH FX Strategy

NEW YORK ( BBH FX Strategy) -- The Indian Rupee's near 2% gain against the dollar since Wednesday does not change our negative view towards the currency.

The move was probably just an INR short squeeze triggered by the confluence of three factors: RBI sales of USD, new regulation curbing hedging activity (see below), and better risk appetite.

Given that pessimism towards Indian assets is already well ingrained and priced in by markets, we would not be surprised to see this current INR rally extend for the next few sessions if risk appetite holds up. This would provide an even better entry point for new short positions.

At this stage we are more inclined to play short INR in relative value trades against other Asia currencies in order to reduce market risk. Currencies such as SGD, IDR and even KRW, for example, offer much stronger economic fundamentals. More importantly, in this environment, the commitment of policy makers to defend their currencies against further depreciation is far more credible in all three other cases than it is in India.

Our INR/USD forecast for the first quarter of 2012 is 56.00, or 5.8% weaker from current levels, but the risks are for an even larger move. In contrast, we expect SGD to depreciate only 1.3%, IDR 1.8% and KRW 3.4% over the same time period.

The RBI meeting today was a non-event. The bank left the Repo rate on hold at 8.50% and, as expected, followed up previous dovish comments with a statement suggesting that the next move will be a cut. It also noted that the authorities remain vigilant on the external sector and that fiscal slippage is worsening the inflation outlook. Although markets are not trading on carry right now, the prospect of lower India rates, coupled with still-weakening fundamentals, supports our more bearish stance in the rupee.

The RBI announced new measures yesterday aimed at curbing further depreciation. Although in practice this measure will technically apply to both resident and non-resident players, it will have the most significant impact on local exporters. The primary change is that onshore FX forward contracts, once cancelled, cannot be rebooked as was previously permitted.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.65 -0.66%
FB $101.93 0.92%
GOOG $681.92 -0.32%
TSLA $150.01 4.40%
YHOO $26.75 -1.30%


Chart of I:DJI
DOW 15,660.18 -254.56 -1.60%
S&P 500 1,829.08 -22.78 -1.23%
NASDAQ 4,266.8370 -16.7550 -0.39%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs