Pent up dollar demand by jewellers likely to exert pressure on rupee

Pent up demand for US dollars by the jewellery sector, coupled with a weak Chinese yuan, are expected to exert pressure on the Indian rupee during the upcoming week, experts said today.

"Keep an eye out for the bullion users, as once they get back to work, we can see a lot of pent up demand from these guys to emerge. This demand, along with demand from central bank can exert an upward pressure on dollar/rupee (pair)," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS. A sizeable section of jewellery industry players have been on strike against a proposed one per cent hike in excise duty on non-silver jewellery in the union budget for 2016-17.

They have been on strike since March 2. The central government has constituted a panel to look into their demands. "Chinese yuan has begun weakening which should be an added negative for rupee as well. We see USD/INR trade between 66.30-50 and 67.00/67-20 levels for the next week," Banerjee cited.

According to Banerjee, despite a midweek sell-off towards 66.93, rupee managed to close nearly flat, due to relentless selling of US dollars from fronts like IT (information technology) companies.

"Demand for US dollars from RBI (Reserve Bank of India) has managed to build a floor under the US dollar for the moment, around 66.40-50 levels on spot," Banerjee elaborated. "However going into the final quarter of the year, we can see more selling from large exporters."

During the truncated week ended March 23, the rupee weakened by 12 paise. The domestic currency markets were closed on Thursday-Friday, on account of Holi and Good Friday.

On a weekly basis, the rupee weak- ened by 12 paise to 66.62-63 (March 23) against a US dollar from its previous close of 66.50-51 (March 18) to a greenback.

Other analysts, attributed the rupee weakness on a strong US dollar. The US dollar has strengthened on the back of increased chances of a hike in US interest rates in April. Even the Brussels attacks led investors to park their funds in safe assets like the US dollar.

Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, said: "The US dollar rose due to its appeal as a safe haven asset, pushing rupee towards the 67 mark." However, there was an increased inflows by the foreign investors in the country's equity and bond markets. The National Securities Depository Limited (NSDL) figures showed that the FPIs (Foreign Portfolio Investors) bought Rs63.41 billion or $952.79 million in the equity and debt markets from March 21-23.