Indian exporters shouldn’t rush to hedge non-dollar exposure – analysts

A gas station attendant arranges Indian rupee banknotes in Kolkata, India August 16, 2018. REUTERS/Rupak of Chowdhuri

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MUMBAI, Sept 8 (Reuters) – Indian exporters should wait for the dollar to retreat from its recent high before hedging future earnings in currencies other than the greenback, analysts said on Thursday.

Exporters who have shipped goods and expect to earn euros, pounds and yen are considering ways to manage currency risk as the dollar soars against its major peers, along with the rupee is kept within a narrow range by the Reserve Bank of India (RBI).

The dollar index is hovering near its highest level in 20 years, thanks to the aggressive tightening of monetary policy by the Federal Reserve. Meanwhile, the rupiah managed to avoid crossing 80 to the dollar again thanks to the intervention of the RBI.

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This means that the euro-rupee cross rate has fallen by 1.5% since August, the pound has lost 5% against the rupee and the yen-rupee rate has fallen by 7%. The losses since the beginning of the year are even greater.

“We have been advising exporters to hedge their cross exposure for several months,” said Samir Lodha, managing director of QuantArt Market Solutions.

“Now what we’re saying is wait for a corrective move up (on the crosses) before doing new hurdles.”

Selling euros and yen in the futures market typically earns an exporter some premium, and the generous premium on the yen and euro has provided some headroom and flexibility, Lodha said.

Exporters can earn up to 5.5% to 6.5% premium when selling euros and yen for future settlement.

“We expect the dollar index to pull back over the next few weeks, pushing these crosses higher. The rupiah will be broadly flat,” said Arnob Biswas, head of FX research at SMC Global Securities. “Exporters can take advantage of this corrective recovery.”

Biswas pointed to next week’s US consumer inflation and the September 20-21 Fed meeting as events likely to trigger a decline in the dollar index.

Still, the dollar index will maintain an uptrend and any pullback is likely to be temporary, he said.

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Reporting by Nimesh Vora; Editing by Anil D’Silva

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