Exporters Shouldn’t Rush To Hedge Non-Dollar Exposure: Report

The dollar index is hovering near its highest level in 20 years.


The exporters should wait for the dollar to pullback from its recent high before hedging their future receipts in currencies other than the greenback, analysts said on Thursday.

Exporters that have shipped goods and expect to earn euros, pounds and the yen are eyeing ways to manage the currency risk as the dollar surges against its major peers, at the same time that the rupee has been held in 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 Federal Reserve’s aggressive monetary policy tightening. Meanwhile, the rupee has managed to avoid crossing 80 per dollar again due to the RBI’s intervention.

That has meant the euro-rupee cross rate is down 1.5% since August, the sterling has lost 5% versus rupee and the yen-rupee rate is down 7%. The year-to-date losses are even deeper.

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

“Now, what we are saying is to wait for a corrective up move (on crosses) before making fresh hedges.”

Selling euros and yen in the forward market typically earns an exporter some premium, and the generous premium on the yen and the euro provided a bit of leeway and flexibility, Lodha said.

Exporters can make as much as 5.5% to 6.5% in premium when they sell euro and yen for future settlement.

“We expect a pullback in the dollar index over the next weeks, pushing these crosses higher. Rupee will be broadly stable,” 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 U.S. consumer inflation and the Sept. 20-21 Fed meeting as events that could trigger a pullback on the dollar index.

Still, the dollar index will retain an uptrend and any pull back is likely to be temporary, he said.The dollar index is hovering near its highest level in 20 years

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