The Hindu Business Line : Resilience in rupee

The Reserve Bank of India has made its first move, with negligible impact on the rupee. The sudden hike in the cash reserve ratio by 50 basis points did take the currency to Rs 39.78 against the dollar on Monday but dollar buying by oil importers and support from other sources stemmed the appreciation at that level. The USD-INR currency pair is likely to stay watchful ahead of the monetary policy review next Tuesday.

The dollar strengthened last week buoyed by ‘better than expected’ earnings from the stocks in financial sector. But the 77-per cent drop in first quarter profits reported by Bank of America coupled with crude prices moving above $117 resulted in dollar weakening again.

1-month view

The movement of the USD-INR pair in the past week has not changed our medium term view. The sideways move between Rs 39.6 and Rs 40.1 can continue for a few more weeks.

The currency pair is in an intermediate term uptrend since the January trough at Rs 39.03. The current struggle to move beyond Rs 40.1 appears to be the halt before a move lower to Rs 39.33.

This negative bias will be mitigated once the pair moves past Rs 40.1 and pave the way for a move higher towards Rs 40.3. The weekly momentum indicators are moving sideways in the neutral region reflecting this ambivalent medium term view.

5-day view

The currency pair tested the trough at Rs 39.6, indicated in our last column, on Tuesday. The fact that the ceiling for the short-term range has moved lower from Rs 40.05 to Rs 40 denotes downward pressure.

The USD-INR pair is currently glued to the short-term range Rs 39.7 and Rs 40. A bland monetary policy review in which Dr Reddy limits his action to a few hawkish comments can result in the currency pair staying within this range.

Any tweaking of the repo or reverse repo rate can make the pair head towards the lower end of the band at Rs 39.6. The downward momentum will intensify only if this base is penetrated.

Supports – 39.84, 39.6, 39.4

Resistance – 40.0, 40.05, 40.1

Lokeshwarri S.K.

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