Expectation is rupee to head towards 60 per dollar by December-end on the rollback of stimulus or bond buying by the US Federal Reserve and rise in dollar demand by oil importers as reasons for the dollar appreciation.
On Wednesday, US Federal Reserve Chairman Ben Bernanke said the economy still needs aid and premature scaling down of the bond buying program could lead to substantial risk of slowing or ending the economic recovery. However, he was quick to add that the central bank is ready to taper its bond buying program in the coming months provided the housing sector and labour market continue to show strong signs of growth.
Europe's nagging debt crisis and economic recovery in the US is boosting dollar demand. The US economy has benefitted from a resurgent housing market, rising retail sales and consumer confidence, and lower jobless claims.
The US economy lost 8.7 million jobs in the aftermath of the financial crisis. It has since gained back about 6.2 million jobs. As of April, the US unemployment rate was 7.5%, an improvement from its 10% high seen during the financial crisis.
Based on these factors, the dollar index is likely to appreciate to 88 levels from 84 currently.
Investors are seeking haven in the greenback after China's manufacturing activity contracted to seven-month low in May. China's HSBC's Purchasing Managers' Index fell to 49.6 in May as against 50.4 in April. The contraction is on account of the fall in new orders fuelling concerns that recovery in the world's second-largest economy may slow.
Speculation is also rife that the Reserve Bank of India may be buying dollars at current levels to shore up its forex reserves and may not intervene much to stem the rupee slide. High trade deficit and consumer inflation in India is still a concern for RBI and may fuel the rupee's depreciation.
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