Global Investor

Short-term test for rupee at 61.8

Gurumurthy K | Updated on March 12, 2018

Rupee cues


Dollar index reversal to keep the currency under pressure this week

The rupee failed to sustain above 62 per dollar last week. It reversed lower from a high of 61.82 to 62.44 on Thursday. But it recovered slightly in the final sessions to close 0.32 per cent lower.

In the interim budget on Monday, Finance Minister P Chidambaram said the fiscal deficit will be contained at 4.6 per cent of GDP for 2013-14, well below the 4.8 per cent estimate.

He also said the current account deficit will be contained at $45 billion, against the earlier estimate of $70 billion.

Though this could bring in some relief, there are two developments which could put pressure on the rupee.

The first is the minutes outlining the Federal Reserve’s plans to continue the current pace of stimulus tapering in the US; the second is an International Monetary Fund report that suggests the Reserve Bank of India needs to hike interest rates further to contain inflation.

Data impact

The GDP data release this Friday will be a key event to watch. Ukraine's ability to tackle its debt troubles could also have an impact on global markets next week.

Foreign institutional investors (FIIs) turned net buyers in the equity segment after selling about $760 million over the past three consecutive weeks. They bought $235 million in equity and $582 million in debt in the past week.

The dollar index tested its crucial support at 79.9 last week as expected and has reversed higher from there.

While the index remains above 79.9, a rise to 81 and 81.5 looks likely in the coming weeks. A breakout on either side of 79.9-81.5 will decide the subsequent trend for the index.

The Asian dollar index had reversed sharply lower from its key resistance of 116 to close at 115.3 for the week.

Preliminary data showing a fall in Chinese manufacturing output to a seven-month low of 48.3 in February from 49.5 in January was the main trigger for the index’ reversal. A further fall to 115 and 114.8 is likely in the coming week. This could thwart any rally in the rupee this week.

Dollar-rupee outlook

The rupee was unable to move below the support of 62.5 last week and can now strengthen to test 61.8.

There is a high probability of the rupee reversing lower from here and remaining confined in the range of 61.8 to 62.5. Inability to break 61.8 could keep the rupee under pressure.

But a break above 61.8 can see the rupee moving higher to 61.5 and 61. Supports for the coming week are at 62.5, 62.8 and 63.

In the medium term, 61-64 is the range that can be seen. A break of 61 could take the rupee higher to 60 and 59 while a fall below 64 would establish targets at 64.85 and 65.8 levels.

Published on February 23, 2014

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