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Re Expected To Depreciate Against $

Monday, October 28, 2013
By Pramit Brahmbhatt

Pramit Brahmbhatt is CEO of Alpari Financial Services (India)

The Rupee depreciated for the second consecutive week. It traded weak as the domestic share markets traded negatively and ended on the lower side of the last week after gaining for three consecutive weeks. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, extended its downward slide last week, on the back of a dovish policy outlook for the Federal Reserve, pushing the euro up further to its highest level since November 2011. Taking cues from this the Rupee depreciated by almost one per cent against the dollar last week. Resistance for USD/INR (Spot) pair is at 62.00 - 62.10 levels; if these levels are breached convincingly then we can expect the Rupee to depreciate further. The trading range for the USD/INR pair is expected to be within 61.00 to 62.50.

It is recommended to be cautious and Buy USD/INR Futures on dips with the appropriate stop loss as the Rupee is expected to depreciate against dollar. Pivot Point for the Pair is at 61.54.

The subdued movement in dollar partly reflects the expectation that Fed will maintain its asset-purchase program intact in its next week’s policy meeting. U.S. data due out later Friday included September durable-goods orders, expected to swing to a 3% gain after August 0.1% rise, and the University of Michigan consumer sentiment index, which is seen falling to 74.8 from last month’s 75.2.

Inflation data out of Japan highlighted how nervous consumers are. Consumer prices rose 1.1% y/y to September, modestly higher than an expected 0.9% increase, but underlying inflation remains subdued. Core inflation, which excludes food prices, rose in line with expectations at 0.7% y/y and core-core inflation, which excludes food and energy prices, was flat. In Tokyo, consumer prices excluding food and energy continue to fall, this time around by 0.3% y/y. Overall, the only prices which appear to be on the way up are those related to the import sector and, therefore, effected by the weaker yen. Nonetheless, things are heading in the right direction, just a bit slower than the BoJ would like. The BoJ has said it will do whatever it takes to reach its 2% inflation target, but the bank seems content to watch from the sideline as its program of easing attempts to spur demand.

Gold futures rose more than 1% last Thursday for their highest close in five weeks as a gauge of manufacturing in China, one of the world’s biggest gold buyers, climbed to a seven-month high in October. Chinese manufacturing data showed that the economic recovery is getting better in the country. This is definitely a positive sentiment for gold demand; given that China is one the biggest consumers of gold. Dollar weakness tends to boost dollar-denominated commodities such as gold, because it makes them cheaper for holders of other currencies.

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