Wednesday, March 7, 2012

Buyer beware and sellers too!

USD / INR reached well over 50 (50.75 intraday high) yet again.  Stock market slump, oil demand, a bit of panic and RBI intervention - just the same old story. Rupee staged a smart recovery on the back of investment flows earlier this year.  However fundamentally little has changed explaining Rupee's nosedive. 

Recent data showed the Euro Zone shrank 0.3% in the last quarter of 2011 worsening recession fears.  Despite second bailout package concerns remain whether Greece would manage to meet its deadline for debt restructuring.  

Crude continues to soar putting huge pressure on India's balance of payment. There seems to be no respite.

US data though increasingly encouraging, the recent testimony of Federal Reserve chairman continues to reflect skepticism - the pace of expansion has been modest and uneven and long term unemployment is near record high.  Given the restrained growth, the fed rates are likely to remain near zero for considerably long time.

At home, economic and political situation remain as challenging as it was yesterday or last week or last month.  Added to existing woes, the poll results seem to set an anti-incumbency trend raising further concerns on fate of policy decisions going forward.  

Volatility in Rupee is likely to remain high see-sawing between hot money chasing Indian shores and internal inability to retain investments.  Views and projections make an interesting conversation at a cocktail party; but decisions based on views may not bode well for business.  

Base your hedge decisions on exchange rate budgets and be extra cautious in setting budget rates for the coming financial year.  As the old adage goes, it is better to be safe than sorry!

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