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Over the last week, the rupee weakened further against the dollar, losing 0.43 per cent to trade at 53.97. While the Cabinet was reshuffled, there was little new from the Government by way of additional measures to boost growth. Also, the RBI revised downwards the GDP growth projection for 2012-13 from 6.5 per cent to 5.7 per cent, raised the March-end inflation estimate from 7 per cent to 7.5 per cent, and flagged off concerns about worsening current account deficit. At around $112 a barrel, the cost of crude oil (Brent) continues to be quite high. These factors contributed to the weak sentiment towards the rupee, which on Monday fell below 54 to the dollar, after more than 40 days above that level.
On Tuesday, despite signals from the Government to cut rates to propel growth, the RBI remained focused on inflation control. It kept the repo rate unchanged though it reduced the cash reserve ratio by 25 basis points. This weakened the rupee further but it recouped to close the day with gains — suggesting that the market had anticipated RBI’s status quo stance on the repo rate.
Against the Euro, the INR gained marginally (0.05 per cent) over the week and currently trades at 69.89. The Euro also lost against the USD and currently yields 1.296 dollars a piece, down 0.21 per cent over the week. Renewed worries about the economic outlook in Greece and Spain, and weak employment numbers in Germany contributed to the weakness in the Euro.
In the global currency market, fears about the impact of Hurricane Sandy in the US saw a move towards the safety of the dollar. This resulted in the Dollar index making gains and closing above the 80-level mark during the week. But this was not sustained and the index lost 0.07 per cent over the week to close at 79.92.
Technical Outlook
Dollar-rupee : After testing key long-term resistance level at around 52 on October 5, the Indian currency reversed lower. Since then, it has been on a short-term downtrend. Last week, the rupee breached important support at 53.5 and is heading lower to 55. Next support below 55 is at 56.
On the other hand, only a strong up move above 53 level will alter its short-term downtrend and push the rupee higher to 52.5 and then to 52 in the upcoming weeks. Immediate resistance is at 53.5.
USD-INR futures : Since the low marked on October 5, the USD-INR futures have been on a short-term uptrend. On October 29, the contract jumped 1.3 per cent and is currently testing its key medium-term resistance at 54. Strong move above this resistance will take the contract higher to 54.8 and then to 55.2 levels. Traders can prolong their long positions as long as the contract trades above 53. But a fall below 53 will pull the contract down to 52.5 or to 52 levels in the short-term.
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