USD/INR began 2017 at 68.00, and is currently at 66.80, contrary to this column's prediction of gentle rupee depreciation through the year.

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Despite the relative strength of the US economy, and expectations of US interest rate hikes, the US Dollar Index (DXY) has come down from a peak of 103.2 in 2017 to 101.5 now. Strong steps by China to protect the yuan, and the Trump administration frowning upon a strong US dollar, have all helped.

In India, the first calendar quarter is usually positive for the rupee, with exports, foreign direct investment and and foreign portfolio investors showing an uptick. Sentiment is also upbeat this time, with our stock markets rising by over 10%. If the ruling party fares well on March 11 at the state elections, this positive market mood could sustain into the medium term.

Further, USD/INR one-year premia has moved up from a low of Rs 2.90 in 2017 to over Rs 3.20 now. Higher premia and a steady outlook on the currency could lead to an increase in unhedged foreign currency exposures. Exporters could increase hedge ratios, while importers, foreign investors and domestic firms with foreign currency borrowings could be less inclined to hedge.

The Reserve Bank of India (RBI) is probably intervening now to mop up US dollar supply through forward purchases of the dollar, and absent this intervention, rupee could strengthen even more. In the meantime, the 36-country rupee real effective exchange rate (Reer) is over 119, and continues to indicate rupee overvaluation.

Experts point out that currency by itself is a poor tool to promote exports. India's exports have been inelastic to rupee depreciation.

However, that does not mean that a relatively strong rupee, on the back of unhedged foreign currency bets as opposed to real trade or capital surpluses, is healthy for us. Despite our underemployed workforce, we continue to import $60B of manufactured goods from Greater China. We have a problem both on Make in India and on Make for India, and our relative currency strength does have a tangible bearing at least on import substitution.

Finally, a rupee propped up by currency bets makes us vulnerable to global or domestic shocks. If, God forbid, we were to see one of the many global economic vulnerabilities flare up, all the unhedged bets on rupee could rush in to cover simultaneously. We would then depend on the ability and willingness of the RBI to defend the currency.

In the meantime, the trend remains the trader's friend.

The writer is regional head of financial markets for Asean & South Asia of Standard Chartered