Friday, March 24, 2023

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Rupee edges up as analysts reckon CAD likely peaked, dollar slips

MUMBAI: The rupee firmed on Friday in its final trading session of the year as the dollar eased, while hopes that the country’s current account deficit had likely peaked for the time being provided some support.
The rupee rose 0.06% to 82.75 per dollar by 10:25 a.m. IST. Lack of inflows during the year-end may be curtailing further gains as the mood in the broader markets was positive, traders pointed out.
However, the rupee is set for losses of about 11% this year – its worst performance since 2013. The dollar’s towering gains, on the back of the US Federal Reserve’s monetary tightening policy, whacked global currencies.
Higher oil prices further weighed on the rupee as its trade deficit expanded, but cooling commodity prices has improved prospects for 2023.
For the September quarter, the current account deficit (CAD) widened to $36.40 billion, its highest in more than a decade, as the trade gap went up. As a percentage of GDP, the CAD was 4.4%, the highest since mid-2013.
“While that appears ominous, peak discomfort could be behind us,” economists at QuantEco Research said.
“Moderation in commodity prices, traction in service exports, and signs of stability in foreign portfolio investments would render the current account gap tenable from a macro stability perspective.”
Economists at ICICI Bank expect the rupee’s near-term range to be 81.50-83.50, on the back of an improved CAD outlook.
Meanwhile, most Asian currencies and stocks were firmer in the final trading session of the year after US jobs data showed the Fed’s rate hikes were dampening inflationary pressures.
The dollar index fell 0.4% overnight, but was headed to notch the biggest yearly gains since 2015.
Inflation in the United States remains elevated and is a cause of concern for the Fed, which is expected to deliver a few more rate hikes. The US economy entering a period of likely recession next year could again be dollar positive.
“Although, a repeat of a dominant dollar trend looks unlikely,” ING analysts said in their 2023 outlook report.

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