The Hindu Business Line : Short-term support for rupee at 44

The manic selling in the equity markets this week had its effect on the Indian currency too, causing it to slip below the 43 bastion against the dollar on Tuesday. Dollar demand from arbitrageurs, reflected in the 1-month non-deliverable forward (NDF) rupee rate at 43.97, is the other reason for the rupee slipping below the 43 mark.

It has been a beleaguered first half for the rupee with an 8 per cent depreciation in this period. About half of these losses were recorded in May, spurred by international crude prices moving beyond $120. The downward pressure is likely to be maintained for the rest of this year due to high commodity prices, inflationary concerns and slowing growth of the economy.

1-month view

The RBI’s move to hike CRR and repo rates last week caused the rupee to appreciate to 42.39 by June 29. But the currency reversed from this level, spurred by the sell-off in the stock markets and crude’s spike above $140. The fourth wave from 39.02 could have ended at this trough and the fifth wave could be in motion now. The targets for the fifth wave are 43.5 and then 44.2.

The currency had already achieved the first target on Tuesday. If the decline continues, the next halt could be around 44. We maintain the view that the currency would move between 41.6 and 44 over the medium term. Break-out beyond either boundary would set the next course for the currency.

5-day view

The rupee broke below the 43.2 support on Tuesday to form the trough at 43.47. The short-term decline in the currency can sustain and drag it lower to 43.5 or 43.8. However, if the rupee managed to appreciate and close above 43.2, it would imply that the weakness has been arrested and the currency would then appreciate towards 42.95 or 42.6.

The next support band for the rupee exists between 44 and 44.2. This zone is likely to arrest any short-term declines in the near term.

Supports – 43.5, 43.85, 44.17

Resistances – 42.9, 42.6, 42.4

Lokeshwarri S. K.

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