Money & Banking

Currency outlook: Rupee's woes continue

Anand Kalyanaraman Lokeshwarri S.K. | Updated on March 12, 2018 Published on May 15, 2012


The rupee continued its losing spree last fortnight. On May 14, the INR closed at its all-time low of 53.96 against the US dollar. This was within striking distance of the lowest level of 54.30 touched by the currency in intra-day trading on December 15. The rupee currently trades at 53.79 to a dollar, down 1.6 per cent over the last two weeks. The incessant pressure on the rupee was due to a combination of both local and global factors.

On the domestic front, the negative streak continued — industrial growth in March fell 3.5 per cent year-on-year, inflation in April was higher-than-expected at 7.23 per cent, and the Sensex lost 973 points (5.6 per cent) over the fortnight. The RBI's fire-fighting measures to stem the rupee's fall — directing exporters to convert 50 per cent of foreign currency held in their EEFC accounts into rupees within 15 days — provided but a temporary respite.

Also, the government's move to postpone implementation of the general anti-avoidance rules (GAAR) by a year did little to prevent the steep slide in the equity market. Reports suggest that the fall in the rupee might have been steeper, but for intervention by the RBI at levels close to 54. But there are fears that the central bank may be running out of ammunition. The country's foreign exchange reserves are under pressure from the widening current account deficit (imports growing much faster than exports). The rupee's loss against the dollar was exacerbated by the latter strengthening in global currency markets.

The Dollar Index gained 1.9 per cent over the past fortnight and currently trades at 80.65. This was driven by concerns about the future of the Euro. There are fears that the new regime in France would make a shift away from austerity measures.

Also, political instability in Greece (where anti-austerity parties gained majority but have not yet been able to stitch together a government) saw the Euro lose a heavy 2.4 per cent against the US dollar. One Euro currently yields 1.284 dollars. The sharp weakness in the Euro also had the effect of the INR gaining 0.7 per cent against the currency over the last fortnight to close at 69.11.

Technical Outlook

Dollar-rupee outlook: Rupee moved sideways with a positive bias over the past week. The currency is forming a descending triangle pattern since May 4. This pattern has a negative connotation for the near term and implies that the rupee-dollar rate can break lower to 55.1. The rupee dollar rate needs to move above 53.4 to make the near term view positive.

The medium-term trend in the rupee is down since the peak of 48.6 recorded on February 6. The currency needs to record a strong close above 51.9 to signal that the medium-term trend is reversing higher. If rallies halt at 52.7 or 51.9, it will retain the negative medium-term view.

Immediate resistances for the Indian currency are at 53.4 and 53. Inability to move above the first resistance will mean that the currency can decline below 54 in the upcoming sessions.

USD-INR futures: This contract recorded the high of 54.5 on May 10 and is moving sideways since then. Short-term supports for the contract are at 53.5 and 53.2. Reversal from the first support will take the contract higher to 54.5 or 55 in the upcoming sessions.

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Published on May 15, 2012
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