Technical Analysis

Daily rupee call: INR at life-time low, exercise caution in trading

Akhil Nallamuthu BL Research Bureau | Updated on March 13, 2020

The rupee (INR) has opened weaker today, at 74.39 versus yesterday’s close of 74.21 against the dollar (USD). The Indian currency slipped once the session opened and is currently trading at 74.45, after registering its fresh lifetime low of 74.5 against the greenback.

A decisive break below 74.5 can drag the local currency lower to 75 whereas a recovery can face hurdles at 74.25 and 74.

In yesterday’s session, the local currency opened with a gap-down at 74.28 versus its previous close of 73.64; it marked an intraday low of 74.34. But the rupee was largely flat throughout the day, where it closed the session at 74.21. The Foreign Portfolio Investments (FPI) continues to sell and as on yesterday, the net outflow for the month was ₹33,164 crore (equity and debt combined), as per the National Securities Depository Limited (NSDL) data.

Balance of Payments (BoP)

Yesterday, the Reserve Bank of India (RBI) released the Balance of Payments (BoP) data for the third quarter of 2019-20. According to the statement, the Current Account Deficit (CAD) sharply narrowed to $1.4 billion in Q3 of 2019-20 compared to $17.7 billion in Q3 of 2018-19. It narrowed on sequential basis too as CAD was $6.5 billion in the previous quarter.

It also improved as a percentage of GDP as CAD has dropped to 0.2 per cent of GDP in Q3 of 2019-20 against 2.7 per cent that was recorded during the comparative period last year. The contraction in CAD was primarily driven by trade deficit, its largest component. Trade deficit for the period narrowed to $34.6 billion versus $49.5 billion dollar a year ago. Consistent improvement in BoP can result in strengthening of the rupee over the medium and long term.

Inflation

The Consumer Price Index (CPI) data released on Thursday shows that the inflation eased in the month of February. The CPI for the month has come down sequentially to 6.58 per cent compared to 7.59 per cent in January. But it stays higher compared to the same month of the previous year, wherein it stood at 2.57 per cent.

The consumer food price index has dropped to 10.8 per cent from previous month’s 13.6 per cent. However, the current level of inflation is still above the Reserve Bank of India’s (RBI) targeted level. Nevertheless, the upside might have stalled, and this is a comforting factor for the Indian currency as inflation has been a major concern of late. Easing inflation makes room for the RBI to cut rates.

Industrial production

The Index of Industrial Production (IIP) data was also released yesterday. The index has expanded by 2 per cent in January against the growth of 0.1 per cent in December. In the comparative month of the previous year, the index expanded by 1.7 per cent. Along with easing inflation, higher industrial production can positively influence the rupee.

Dollar index

The dollar index extended its rally for the third straight session and is currently hovering above the support of 97.2. In yesterday’s session, it marked an intraday high of 98.3. If the index continues to rally, it will face a hurdle at 98 and 98.3 whereas the nearest support below 97.2 is at 96.5.

Trade strategy

The trend is negative and as long as the rupee remains below 74, it will be bearish. But the announcement from the RBI to conduct dollar sell/buy swap in an attempt to arrest the fall might put a floor on the downside. Thus, for intraday, the rupee can be volatile without a definite trend and so traders can stay on the sidelines.

Supports: 74.5 and 75

Resistances: 74.25 and 74

Published on March 13, 2020

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