Money & Banking

Rupee shows fresh signs of weakness

Gurumurthy K BL Research Bureau | Updated on March 19, 2018

US Fed meeting has global markets on tenterhooks

The rupee continues to remain weak against the US dollar. Though the rupee remained above 65 for most part of the week, it failed to gain strength.

The price movement in the past week indicates that the rupee lacks fresh buying interest to take it above 65. This reflects the inherent weakness in the rupee. The currency touched a high of 64.80 on Thursday and reversed sharply lower, breaking below 65 again. The rupee closed at 65.18 on Monday.

Deficit worries

While the sell-off in the equity markets has kept the rupee under pressure, the balance of payments data released on Friday also dragged the currency below 65 on Monday.

India’s current account deficit (CAD) widened to $13.48 billion in the October-December quarter in 2017 from $7.92 billion in the same quarter previous year. The CAD, currently at 2 per cent of GDP, could keep the rupee under pressure from a medium-term perspective.

FPIs sell more

Foreign portfolio investors (FPIs) continued to sell Indian debt for the fifth consecutive week. They sold $897 million in the debt segment last week, and $1.6 billion so far this month. And over the last five weeks they sold debt worth $2.38 billion.

The FPIs’ extended selling spree could continue to keep the rupee under pressure.

Fed meeting

Volatility is guaranteed in the coming week as the global markets await the outcome of the US Federal Reserve meeting on Wednesday. Speculation is high for the first rate hike for the year, to begin this month.

More than rate action, markets are keenly awaiting new Chairman Jerome Powell’s first press conference.

The dollar index inched above 90 in the past week. It is currently trading at 90.15. A key support is at 89.70. As long as it stays above 89.70, there is a strong likelihood of the index testing the key resistance at 90.55 in the coming days.

Whether the index breaks above 90.55 or not will decide the next move. A break above 90.55 will take the index higher to 91 initially. Further break above 91 will then pave the way for 91.85 and 92. But inability to break above 90.55 can continue to keep the dollar index in the sideways range of 89 and 90.55 for some more time.

Rupee outlook

The reversal from 64.80 followed by a strong break and a decisive close below 65 on Monday is a negative for the rupee. The price action since the beginning of this month reflects the flag formation on the chart.

 

 

Immediate support is at 65.20 which is vulnerable to a break. A strong break below 65.20 will confirm the flag pattern. Such a break will drag the rupee lower to 65.5 initially. Further break below 65.5 will then increase the possibility of the rupee weakening towards 66.

The level of 64.80 is a key short-term resistance for the rupee. The currency will get a breather only if it breaches this hurdle. The next targets are 64.5 and 64.3. But such a strong upmove looks unlikely at the moment.

Published on March 19, 2018

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