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Rupee gained over the past week spurred by increased inflows into the emerging markets as risk aversion ebbed on strong economic data from the US. On the domestic front, signs of improvement in economic indicators aided the rupee’s up-move. Rupee was up 1.33 per cent for the week against dollar. It hit the intra-week high of 54.53 on Monday.
Trade deficit in India narrowed to $14.9 billion in February compared with $20 billion in the previous month. Exports increased by 4.25 per cent to $26.26 billion while imports grew by 2.26 per cent to $41.18 billion.
On the back of better-than-expected growth in manufacturing, industrial production numbers for January were up 2.4 per cent.
Hopes for rate cut diminished as the consumer price index came at 10.91 per cent, higher than last month’s figure of 10.79. An index tracking the US service sector rose to 56, a 12-month high and unemployment rate there fell to four-year low of 7.7 per cent. This helped the dollar index move up to 82.79. Euro fell from its intra-week high of €1.31 a dollar to 1.30 after Italy’s government bond rating was cut to BBB+ from A- . One-month implied volatility for rupee, a measure of expected moves in exchange rates that is used to price options, decreased by 70 basis points to 9.02 for the week. Three-month onshore rupee forwards were at 55.26 a dollar and offshore non-deliverable contracts were at 55.06 a dollar on Tuesday compared to 55.92 and 55.94 respectively last week.
Dollar-rupee technical outlook
The rupee did not weaken below 55.1, and reversed higher from this trough formed on March 4. Short-term targets are now placed at 54.3, 54 and 53.7. These will be achieved if the rupee continues its rally on Wednesday.
We will retain a negative medium term view as long as the currency trades below 53.7. Firm close above this level will be needed to signal that the rupee is heading towards 52.9 and above.
Short-term supports for the Indian currency are placed at 54.5 and 54.7.
USD-INR future
The USD-INR futures hit a low of 54.3 on Monday and is currently halting there. Immediate downward target is 54. Short-term traders should watch out for upward reversal from this area. In that event, the contract can move up to 54.8 or 55.1 in the sessions ahead.
But decline below 54 will mean that the contract can decline to 53.7 or 53.1 in the short-term.
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