The rupee continued to get pummelled. It recorded a new life-time low of 64.18 on Tuesday, losing 6.05 per cent over the past week. Although it recovered from the intra-day low and closed at 63.23, on possible RBI intervention, the outlook remains bearish for the rupee.
Data released last Wednesday showed that India’s headline inflation, the wholesale price index, grew at 5.79 per cent in July, a five-month high. This has reduced the chances of any rate cut from the RBI in the near term, which could add further pressure on the rupee.
The RBI has been in a tizzy, announcing a slew of measures, even as the rupee continued to sink to new lows. The apex bank has restricted the outward remittance limit for individuals from $200,000 to $75,000 and corporate overseas direct investment limit to 100 per cent of the net worth of the company from 400 per cent.
This triggered a sharp fall in the Indian stock market last Friday, pulling the rupee down with it. Following this, on Monday, the foreign direct investment limit in asset reconstruction companies were raised to 74 per cent from 49 per cent. On Tuesday, the process of NRI portfolio investments was eased. Also, an import duty of 36.05 per cent has been imposed on high-end flat screen plasma televisions from August 26. However, none of these measures had any impact on the rupee.
The dollar index is continuing to receive support near 81. Although the industrial production data release from the US last week was weak, good housing starts and unemployment claims data helped in keeping the dollar index above 81. The US Federal Reserve’s minutes of the July meeting is due tonight, which will be crucial. Any signal from the Federal Reserve tonight on immediate tapering of the quantitative easing would make the situation worse for the rupee. This would result in foreign institutional investors pulling out more money out of India that could take the rupee beyond 65 levels. FIIs have sold $1.19 billion in debt so far in August.
Dollar-rupee outlook
The rupee reversed higher from the low of 64.18. This reversal can make it move higher to 62.84 or 62.05. Failure to strengthen beyond 62.84 will help maintain a negative short-term view.
However, the overall view remains bearish and a fall to 64.80 cannot be ruled out. But the short-term trend will turn positive once the rupee strengthens above 62.84.
The medium-term view will remain bearish as long as the rupee trades below 60.77.
USD-INR futures
The USD-INR futures contract has risen to 63.50 levels in line with our expectations. It still has room on the upside. Sixty-two is a good support now and dips to this level can be bought with a wide stop below 60. Profits can be booked in the 64.50-65 region.
The EUR-INR futures contract has risen sharply above 80 in the last two weeks. It is in a strong uptrend. But one should wait for a dip to 81 to enter long positions. Stops can be kept below 80 and the pair can target 87-89 levels.
The JPY-INR futures contract has reached our first target of 65 mentioned last week. Traders can hold on to their long positions as the outlook still remains bullish. 65-64 is a good support region and longs can be added on dips to this support region. Stop loss should be wide and below 60. The pair can target 70-72 levels.
The GBP-INR futures contract is looking strong, breaching the psychological level of 100 this week to record a high of 100.32.
The futures retraced from the high of 100.98 to close below 100 on Monday. Ninety seven could now be a good immediate support and long positions can be taken near 97 with stop loss below 95. The pair can target 105-107.