Money & Banking

Rupee consolidates, but is likely to extend its fall

Gurumurthy K BL Research Bureau | Updated on July 16, 2018

A decisive close below 69 will bring back pressure on the currency



The Indian rupee has been stuck in a sideways range between 68.3 and 69 over the last couple of weeks. Within this range, the rupee moved to a high of 68.32 on Friday, but failed to retain strength.

The currency reversed lower on Monday and fell to a low of 68.71 before closing at 68.57.

India’s trade deficit data released on Friday dampened the sentiment, adding pressure on the rupee. The country’s trade deficit widened to $16.6 billion in June – the highest since May 2013. The trade numbers also indicate that the country has begun this new fiscal (2018-19) on a weak note.

The trade deficit for the first quarter (April-June) of the current fiscal stands at $44.94 – the worst over the last five years since June 2013. A sharp increase in the oil imports has led the steep rise in trade deficit.

India’s oil imports increased to $12.73 billion in June, up 11 per cent from $11.5 billion in May. For the first quarter, the oil import bill has increased by a whopping 52 per cent to $34.64 billion in this fiscal, compared to $22.79 billion in the same quarter last year.

Widening trade deficit is likely to keep the current account under pressure.

As a result, the strength in the Indian rupee could continue to wane.

Also, the possibility of the rupee falling to fresh lows on the back of deficit concerns cannot be ruled out in the coming months.

Rupee outlook

The Indian rupee is consolidating between 68.3 and 69 within its overall downtrend over the last couple of weeks. The overall bearish outlook remains intact. Even if the rupee manages to breach 68.30, the upside is expected to be limited. Strong resistance is in the 68-67.90 region, which is likely to cap the upside. The possibility is less of the rupee strengthening beyond 67.90.

As such, an eventual break and a decisive daily close below 69 will bring back renewed pressure on the rupee. Such a break will pave the way for a fresh fall to 69.5 and 70 levels. It will also keep the medium-term bearish outlook intact and the rupee could tumble to 71 and 72 levels in the coming months.

Published on July 16, 2018

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