The Hindu Business Line : Rupee likely to be range-bound

The rupee continued to move in consonance with the stock markets. It appreciated following the mid-week recovery in stock prices last week. But the return of volatility since this Monday has taken the Indian currency close to the 43.5-mark once more.

Demand from oil importers continues to exert downward pressure on the Indian currency. The cooling of crude prices from the recent peak at $145.8 should provide some respite. Further, the rupee trading weaker (between 43.6 and 43.8) in the non-deliverable forward (NDF) market has resulted in dollar demand from arbitrage traders, aiding the rupee decline.

Long-term view

It is now certain that the rupee is in an intermediate term decline against the dollar. This decline, from the 39.02-peak recorded on January 17, is retracing the entire appreciation since May 2002. This intermediate down-trend is halting around the 38.2 per cent retracement, which is at 42.9. The next key support occurs at the 50 per cent retracement level at 44.08.

A reversal above 44 would result in the Indian currency moving in a band between 39 and 44 over the ensuing months. But it is quite likely that the current decline takes the currency towards the key intermediate term support at 45.3 over the next year.

1-month view

The rupee is likely to stay within the band between 41.6 and 44 over the medium term as the first leg of the move from the January trough nears completion. Once this leg completes, a sideways correction is likely in the band between 41.6 and 44 for a few weeks.

5-day view

After a temporary halt, the Indian currency resumed its downward trajectory on Monday. The currency might find support at 43.5 due to official intervention and spend a few more sessions moving in the band between 42.8 and 43.5. But an eventual break-out past 43.5 will cause a decline to 43.65 and then 44.1.

Penetration of the support at 44 is not envisaged in the near-term. Appreciation beyond 42.8 will negate the bearish short-term view.

Supports – 43.6, 44.1, 44.7

Resistances – 42.8, 42.4, 42.1

Lokeshwarri S. K.