The Hindu Business Line : Short-term strength in rupee

Stability in equity markets, weak dollar and unwinding of positions in the non-deliverable forward (NDF) market spurred the rupee above 48 against the dollar. As equities stabilised, foreign institutional investors have turned net buyers in stock markets in December, pumping in close to $500 million this month.

The dollar depreciated sharply against most global currencies over the past week, contributing to rupee strength. The dollar index has declined below the key level at 84. Subsequent supports are at 82 and 80.5. Unwinding of short positions in the NDF market as traders booked profit prior to their year-end holiday too aided the upmove in the rupee. 1-month rupee forward in the NDF market was trading much weaker at 48.3.

Five-day view

The rupee moved contrary to our expectation and appreciated above 48 this week. We had assumed that the narrow move between 49.2 and 50.5 was a consolidation before the downmove resumed. But this assumption was nullified once the currency appreciated beyond 49. The current rally can continue till the rupee reaches the resistance band between 46.7 and 47. Supports for the short-term are at 48.7 and 49.4. A close below the second support is needed to turn the view negative again.

One-month view

We had expected that the decline from the January-peak would unfurl one more leg down beyond 51. But the movement over the last week opens two possibilities,

There will be a sideways correction between 46 and 50 for a few weeks followed by resumption of the downtrend.

Appreciation above 46 will imply that the long-term correction that began from May 2002 is still in motion. As per this count, the rally can take rupee all the way to 44.9 or even 43.5. In other words, the medium term view for rupee will stay negative as long as it remains below 46. Rally above 46 will make the medium term view positive for the currency.

Supports – 48.7, 49.4, 50

Resistances – 47.6, 47.2, 46.2

Lokeshwarri S. K.

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