The fall of the rupee is evidently due to the Chinese devaluation that has affected all countries.
A strong rupee coupled with falling forward premium rates will make bonds attractive to FIIs leading to strong inflows into the debt market. FIIs have invested close to $1 billion in bonds in December 2013 and this trend is likely to continue in 2014.
Analysts in the poll were less optimistic about the rupee's prospects than they were in a similar poll last month, but said the currency is unlikely to weaken to the record low levels seen in August due to an improvement in the country's current account deficit.<br /><br />
The rupee gained past 62 to a dollar to a near two-week high on Tuesday on heavy selling by foreign banks on behalf of their overseas clients.<br /><br />
The rupee is likely to remain under pressure as investors worried about a cutback to the Federal Reserve's easy-money policies are once again pulling back from emerging markets like India, sparking a currency selloff that echoes the May to August rout.
The rupee has been hit by inflation and current account deficit that touched record highs of 4.8 percent of GDP in 2012-13. The markets have not favoured the rupee despite the interest rate differentials between India, the US and Eurozone.<br /><br />
The rupee will struggle to gain any ground in the next 12 months due to uncertainty around elections, the external deficit and the impact of a possible tapering in the Federal Reserve's stimulus programme, a Reuters poll showed.<br /><br />
The foreign exchange market is considered the most liquid and transparent in the world. However, recent investigations into alleged manipulation of the foreign exchange rates is a reminder that transparent exchange-based systems alone are not enough to ensure fairness<br /><br />
The rupee, which had weakened to record lows against the dollar in August, should gain comfort from the strong euro as it signifies rising risk appetite in the market.
The dollar nursed losses near an eight-month low against a basket of currencies on Friday as traders focused on the economic impact of an acrimonious showdown in Washington that dragged the United States to the brink of a debt default.<br /><br />
The rupee's recovery against the dollar last month will not last, according to foreign exchange strategists polled by Reuters, who see the parlous state of the country's finances undermining the currency with US monetary stimulus about to be cut back.
The fall in rupee value against the US dollar was the worst compared to its peers across Asia, Americas, Africa, Europe and the Middle East in August, as per the latest data compiled by the World Federation of Exchanges (WFE).
The Fed's move also means that the RBI will have greater flexibility if it wants to roll back some of the cash tightening steps it initiated since mid-July to stabilise the plunging rupee.
The outcome of the Fed's meeting will be a key determinant of what the Reserve Bank of India chooses to do at its monetary policy review on Friday.
Bankers and exporters preferred to reduce their dollar positions on expectations more foreign capital would flow into the equity market.