The Singapore dollar has the highest weightage in the basket and the rupiah the lowest. The trade has a positive carry of just over 1%. "Seasonally, we expect the rupee to outperform and the INR NEER (nominal effective exchange rate) to strengthen into the end of its fiscal year," Citi analyst Gaurav Garg said.
The final few weeks of India's fiscal year ending March 31 tend to be seasonally favourable for the rupee, driven by intercompany borrowings of corporations being lumped with their local subsidiaries and the repatriation of corporates' profits bunched together before the close of the fiscal year, Garg added. The rupee's outperformance is more likely with a sideways-to-stronger U.S. dollar, Citi said. "During regimes of sideways-to-strengthening U.S. dollar, the rupee can outperform with relative ease given that positioning – the exhaustion from underperformance during broad USD weakness – tends to be light," Garg said.
"The Reserve Bank of India's (RBI) formidable FX reserves limit the risk of outsized currency weakness." With the rupee having sharply underperformed relative to other Asian currencies between November and January, Citi expects a higher partial catch-up retracement in INR NEER. A much narrower-than-expected India January trade deficit should also help, according to Citi. India's merchandise trade deficit dropped to a 12-month low of $17.7 billion in January, prompting some economists to lower their current account deficit projections. (Reporting by Anushka Trivedi; Editing by Janane Venkatraman)
anushka.trivedi.thomsonreuters.com@reuters.net))