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Rupee Left To Market Forces?

Monday, June 11, 2012

Volatility was at its peak in last week as the Indian Rupee continued to register new high and new lows of the week on multiple occasions. A stronger opening witnessed the INR initially strengthening to Rs 55.30 levels, then reversed strengths to Rs 56.07 only strengthen again to Rs 55.07 but again weekend to Rs 55.85 levels and closed towards their lows.

Demand from oil importers at lower levels continued to haunt INR prices and the expectation of a larger rate cut by RBI instilled fears among exporters to book their receipts for a better price has been putting pressure on the prices. The rate cut by RBI and a separate window for the oil marketing companies are the next two major actions which the RBI can take in near term to stem strength in INR. The falling crude oil prices has reduced the impact of a weak INR on Inflation and has given elbow room for the RBI to go in for a rate cut and a rebound in global currencies shall also aid the RBI to consider the other above mentioned option too.
The expectations of further easing from the developed economies such as the Fed and ECB lead into the improvement of global risk appetite which witnessed a strong recovery in global markets but the hopes were dashed away witnessing some pull back. The global markets ended the week on a firm note and the upcoming Greece election on June 17th is the next major trigger from the Euro zone.

The surprise rate cut by the PBoC by quarter basis points on both deposit and lending rates aided the global markets to absorb the shock from Fed. Some strong upbeat in US wholesale inventories and jobless claims supported the equity markets and action from India is awaited.

The upcoming week marks factors like economic numbers of Inflation, spending and manufacturing from the developed economies guiding the risk appetite in global investors. Spain’s banking channel shall dominate the headlines which has already undergone a sovereign downgrade by Fitch.

The outlook for INR in the absence of a stronger policy and administrative action by the authorities is negative and all hopes now on to RBI. However a move above Rs 56.30 shall call in for an aggressive action from RBI till then the INR is left to the market forces.

Exporters are advised to start partial hedging for their receipts from Rs 56.00 levels and the importers can wait if their payment is not immediate till the price strengthens to Rs 54.50 levels for payments with in 30 to 45 days and for over 90 days the Rs 53.00 levels can be expected.

Technical Take on USDINR
The price has been trading within the rising channel and has taken support at the rising trend line support below. The trading of the price above the moving averages is a positive sign and a move above Rs 56.30 shall witness the prices testing the trend line resistance of the broad channel. A decisive move below Rs 55.00 to Rs 54.90 levels shall witness the prices moving towards Rs 54.50 and be supported by the moving averages below. A rise towards Rs 56.00 levels can be used as a selling opportunity with a stop loss above Rs 56.40 targeting Rs 55.10 to Rs 54.90 levels. Or alternatively a rise above Rs 56.40 can be bought with a stop below Rs 56.00 targeting Rs 57.00 levels.

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