The Hindu Business Line : Rupee faces downward pressure

There was plenty to unsettle the foreign exchange market over the past fortnight with the Reserve Bank of India hiking the repo rate by 25 basis points, inflation at a 13-year high, sell-off in the equity markets, political skirmishes and so on.

But the rupee was rock-steady amidst all this bedlam and remained glued to the band between 42.5 and 43. It is no secret that this stability is due to the central bank intervention to arrest the inflationary impact of pricier imports. The downward pressure on rupee is likely to persist in the days ahead due to continued FII outflows from stock markets and strength in crude prices spurred by re-surfacing geo-political tensions.

1-month view

The dollar-rupee pair moved in the band between Rs 41.6 and 44 last fortnight in line with our expectation. This range can continue to shackle the currency pair over the upcoming weeks as the fourth and fifth waves from the 39.02 trough unfold. If the RBI continues to arrest the rupee depreciation beyond 43, the fifth wave will be unable to achieve its target at 43.7 or 44 but terminate around 43.2 instead.

Momentum indicators in the weekly chart are robust though they are in the overbought zone. The implication is that the path of least resistance for the rupee is downward. A move beyond 41.4 is needed to signal that the rupee is on a sustainable road to appreciation.

5-day view

The action in the short-term chart is getting extremely narrow and the currency pair moved between 42.8 and 43 over the last few sessions. This move can continue for a few more sessions but there is a likely to be a downward break-out that takes the rupee to 43.2 or 43.5 eventually. The May-22 trough at 43.2 will act as a strong support for rupee in the near term.

The short term view on the rupee will continue to be negative as long as the currency remains below 42.4.

Supports – 43.2, 43.5, 43.7

Resistances – 42.6, 42.4, 42.1

Lokeshwarri S. K.

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