Indian rupee to shift to 83-85/USD if oil price sticks up - Jefferies global FX head

MUMBAI, Sept 8 (Reuters) - Elevated oil prices pose a challenge to the Indian rupee, and a sustained increase could push the currency to record lows against the U.S. dollar, the head of global foreign exchange at Jefferies told Reuters in an interview.

“With oil breaking higher again, the rupee is starting to weaken,” said Brad Bechtel.

But the Indian rupee will be “one of the more stable currencies out of the whole EM (emerging market) space,” he noted.

Bechtel sees the rupee moving between 83 and 85 against the U.S. dollar, weaker than the prevailing 81-83 range, if oil prices remain high.

The rupee was at 82.9675 on Friday, stronger than its record closing low of 83.21 in the previous session. Brent crude futures fell to $89.82, hovering around a 10-month high of $91.15 hit this week.

Indias central bank has stepped up intervention in the currency markets via the spot market, non-deliverable forwards, and USD/INR futures.

The intervention has supported the rupee and curbed volatility, but “if the RBI were to let it go, then suddenly itd be a huge wake up call for local corporates ... (and) the speculative community who would suddenly jump on the trade.”

If oil prices were to fall, the rupee could fall close to the 82 levels, Bechtel said.

Further, he sees an upside of 2-4% to the dollar index, but not above 110 or a fall below 100. The dollar index was last quoted at 104.9, down by 0.12% in Asia.

The market “is pricing (Fed) cuts way too aggressively. If anything, the Fed might have a couple more hikes left to do,” Bechtel said.

RUPEE INTERNATIONALISATION

India has been pushing to increase trade denominated in rupees, but internationalizing the currency could be a long, drawn-out journey.

But convincing other nations to hold reserves in these currencies is still challenging, “because you dont want to hold too much in currencies that historically have been unstable, like the renminbi or the rupee,” he added.

The task to ensure adequate liquidity to non-dollar currency pairs for trades would fall on central banks, Bechtel said.

“But we still have a long way to go before those are kind of big volume transaction currencies.”