The Hindu Business Line : Rupee near key support

As the credit and financial market turmoil raged on and one titan after another in the financial sector was taken over or nationalised, the rupee resumed its downward trajectory.

Increase in global risk aversion leading to foreign institutional investors (FIIs) pulling out almost $2.1 billion in September also impacted the sentiment towards the Indian currency. The 1-month forward rate for rupee in the non-deliverable forward (NDF) market quoting was 48, leading to arbitrage trades between the on-shore and NDF markets.

The dollar, however, was surprisingly steady. The Dollar index on ICE traded around 76.5, well above the key support at 75 indicated in this column last week. The weakness in the Euro and the Pound due to bank failures in Europe helped the dollar stay firm against a basket of major currencies. This index is expected to remain volatile between 76 and 79 over the ensuing weeks.

1-month view

The rupee moved in line with our expectation to record a peak at 47.11 on Monday. The movement between 45 and 47 can continue for a few more weeks as the currency consolidates before declining towards our medium term target at 49. The medium term view will stay negative as long as the currency stays below 44.8.

If there is an emphatic move beyond 47.2, it would mean the currency would record a swift decline to the 49 mark.

5-day view

The near term trend in the rupee is down. But the currency has strong support at 47, where it bottomed in July 2006. Another reversal from this level can make the rupee appreciate towards 45.9 or 45.1.

If the rupee declines past the support at 47, subsequent targets are 47.5 and then 48.1.

Supports – 47.2, 47.5, 48.1

Resistances – 45.9, 45.2, 44.8

Lokeshwarri S. K.