Rupee to remain weak

The rupee continued to be weak against the dollar over the past week. It hit a low of 61.8 on August 6 before strengthening to 60.48. The measures taken by both the RBI and the Government seem to be having no impact on its movement. The forex market was not impressed by the Finance Minster’s assurance on Monday that the current account deficit can be reduced to 3.7 per cent of GDP through various measures, such as allowing companies in the public sector to raise funds through quasi-sovereign bonds.

Even the Government’s move on Tuesday to raise the import duty on gold and silver to 10 per cent from 8 per cent and 6 per cent, respectively, did not help the rupee strengthen beyond 61.

Macro data released this week was weak, with industrial production in June contracting 2.2 per cent over last year and the trade deficit remaining broadly unchanged at $12.27 billion in July. The 11.64 per cent rise in exports was the sole positive among this gloomy set of data. The wholesale price inflation data to be released today will provide further direction to the Indian currency.

Foreign institutional investors are continuing to pull funds out of the country.

According to SEBI data, since June there has been a net outflow of $8.84 billion in debt and $2.66 billion in equity.

The dollar index is bouncing back from its 81-80 support region and has a very good chance of rising to 84-85 again on a strong rise past 82, if the US industrial production data due on Thursday and housing starts numbers to be released on Friday, are conducive.

Dollar-rupee outlook

The rupee looks vulnerable and is expected to stay below 60 in the short/near term.

Although the rupee was broadly in the 59-61.50 range over the last few weeks, technically, the bias remains weak and the chances of a fall towards 62.80-63.00 cannot be ruled out. For the rupee to gain ground it is necessary for it to strengthen beyond 59.

But the likelihood of such a development is low. The rupee is expected to remain weak below 59 and can target 62.80-63.00 in the near term. A break of 63 will then open the doors for further decline towards 65.

USD-INR futures

The USD-INR futures contract is currently consolidating between 60.50 and 62.00. The pair has good support in the 60.50-60.30 region. Dips to this zone can be bought with a stop loss below 60. A strong break above 62 can target 63.50 in the near term.

Among the other rupee futures, traders can consider initiating a long position in the JPY-INR futures.

This contract has decisively broken its downtrend that was in place since September 2012. The pair can target 65 in the near term. Longs can be initiated with stop below 61.

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