Not a good idea to go long on the dollar before Indian election results?

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Not a good idea to go long on the dollar before Indian election results?
The rupee was virtually written off a few months ago, when it fell to a historic low of 68.86 against the dollar in late August 2013.

In fact, the rupee lost as much as 28 per cent of its value from end 2010 until 2013. The Current Account Deficit (CAD) was in excess of 5 per cent and rating agencies threatened to downgrade India. It was perhaps the worst phase for our currency markets.

But, the rupee is back with a bang. In eight months, since falling to a historic low of 68.86 the rupee has gained from 68 levels to the 60 levels, which has left individuals in the currency market stunned.

Due credit must be given to the government and the RBI for some very smart measures, that have helped curb the current account deficit. Moves like the introduction of forex swaps have benefited the currency immensely, while measures to curb gold imports, helped conserve foreign currency.

The last two months have also seen a good recovery in the rupee on hopes that a Narendra Modi led NDA government would assume power at the centre.

For those trading, the question now would be whether to go long in the dollar? Clearly, every opinion poll points to an NDA victory. Against this backdrop, if you go long on the dollar, chances are you good lose money, because a stable government would mean that the rupee could appreciate fast. There is a possibility that the rupee could touch the 58 levels against the dollar in the next couple of months.

Of course, for that to happen you have to bet on the election results. At the moment, not even an eternal pessimist is ready to bet against the NDA forming the government at the centre.

Clearly, betting against an appreciation in the rupee is fraught with risks. The only hope for those going long on the dollar is another economic bubble bursting, somewhere around the world.

Of course, if you want to hedge your risk, you can go long in the equity market and also long in the dollar. Check currency rates here

Read more about: dollar, rbi, narendra modi, nda
Story first published: Saturday, April 19, 2014, 10:41 [IST]
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