Multiple factors pulling the Rupee lower

Monday | June 10, 2013

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Rupee Performance Factors Impacting the Currency Outlook

Reena Rohit Chief Manager Non-Agri Commodities and Currencies reena.rohit@angelbroking.com (022) 2921 2000 Extn: 6134
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Multiple factors pulling the Rupee lower

Monday | June 10, 2013

Multiple factors pulling the Rupee lower

Mondays opening in the domestic markets has triggered a sense of fear as the Rupee plunged to a new all-time low of 57.767, depreciating over 1.2 percent within hours of opening. Extreme weakness in the Rupee yet again highlights the microeconomic as well as macroeconomic concerns. The central banks role is becoming challenging furthermore despite efforts to curb the weakness in the currency and reduce the high Current Account Deficit (CAD). Latest views by the central bank officials has indicated that they would not directly interfere in the market to curb depreciation in the Rupee, but would rather target issues that are indirectly affecting the currency. Also, Reserve Bank of India (RBI) Governor said last week that a weaker Rupee should not be the criteria for the exporter community and that exporters should improve their business and product competitiveness in order to gain higher remittances, rather than depending on the currency factor to boost revenues. Hence, this statement too is a negative trigger and would cause further sentimental havoc in the domestic economy. While micro economic concerns are bending towards CAD, gold imports and a general slow economic scenario, the macro economic factors that are affecting the Rupee is the strength in the Dollar Index, which is being backed by expectations that the Federal Reserve would withdraw its bond-buying program, thereby creating a favorable condition for the Dollar Index. This in turn would lead to weakness in the Rupee. Also, US Treasury yields would look more attractive and that too could see a pullback in investor flows in the nation. High capital inflows support appreciation in the Rupee and viceversa. Given the current complex macroeconomic happenings, one could take a view on the Rupee with a depreciation bias. Although it has already weakened considerably, there are expectations of a further weakening trend and a stronger Dollar Index would cause majority of the weakness.

Technically too, the trend shows further weakening in the currency

Spot Rupee Daily Price Chart The chart above shows that the Spot Rupee has given a breakout from the resistance at last years high of 57.33. Looking at the formation of the patterns above, we feel that the currency is poised for further weakening and could test levels of 59 and 59.60 on the upside on a short-term basis. For the week, we feel that the trend is up and in the Spot Markets we expect the currency to test 58.45 to 58.90 and on the Futures Platform the Rupee could test 58.60 to 59.05.
Source: Telequote

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