Wow! Rupee makes highest one-day gains since 2013; is the worst over?

As expected the US Federal Reserves delivered a 25 basis points rate hike, which was welcomed very warmly by those who invested in the Indian rupee even as the US Dollar benchmark index became one of the least favorite currencies. So far in 2018, surviving against US dollar has been a difficult task for a host of currencies including rupee, as the former continued to rally to quite an extent. However, looks like tables have turned and glorious days of dollar may just have hit a wall. Today, Indian rupee appreciated by 0.450 points or 0.65% trading at 70.245 against US dollar at interbank forex market, as per Investing.com. 

But did you know, ahead of the US Fed's policy Indian currency made a massive 1-day gain, which was not seen since 2013? Between September 2013 to December 18, the currency rose by Rs 1.12 against the dollar closing at 70.44 on Tuesday.

Strengthening of Indian rupee was not an isolated incident. It was caused by another beating taken by the international crude oil prices. Brent crude, which was trading over $86 in October month, has now hit a 14-month low of $56.86 per barrel. 

The impact of crude oil then was such that in October month itself, rupee plunged to an all-time low of 74.49 per dollar resulting in overall depreciation of 14.51% in 2018. 

Now that the rupee has managed to recover from the 74-mark to a high of 70, can we expect the worst to be over in the currency? Or is this just the calm before yet another storm? 

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Firstly talking about US Fed’s dovish stand and its impact on forex market especially USD, Shivom Chakravarti and Ashray Ohri  analysts at ICICI Bank said, “ First, the Fed emphasized that the main source of risk to the US growth outlook could come from global developments. This in turn resulted in a hefty bout of risk aversion pulling US and global equity markets lower. Inadvertently the Fed’s concerns about the global economy triggered ‘safe-haven’ buying that pushed the DXY higher in the process.”

The duo added, “While we would not rule out further possible upside, we reiterate our bearish USD call over the medium-term given that we expect the growth divergence between the US and non-US world to shrink.”

Just two days ahead of Fed policy, Sumedha DasGupta  another analyst at ICICI Bank mentioned that, “The Rupee is expected to unshackle from the volatility seen earlier this year, and is likely to trade in a range of ~69.50-72.50 in the next few months. “

But the real horror is a rating given by renowned Fitch Ratings, which sees Indian currency weakening to 75 against dollar index by end of December 2019 on the back of widening current account deficit and tighter global financing conditions.

Also, a Reuters poll recently sees Indian currency weakening further as uncertainty builds, heading into national elections due by May.

Well, what is the fate of Indian rupee ahead in next year will surly be keenly watched by one and all! If Fitch Rating's forecast does become a reality by end of December 2019, then Indians will have to fasten their collective seat belt for the storm going forward.