Pramit Brahmbhatt is CEO of Alpari FinancialServices (India)
Last week the rupee dropped to a record closing low on the last trading day of the week. It depreciated by almost 3.50% last week, the worst fall in a week after 22 months. Now the investors have lost the confidence in Rupee as Indian shares has also declined nearly 1% on last Friday, marking their eighth consecutive session of fall and posted its biggest weekly fall since mid-March which has further weakened the Rupee. Constant measures taken by the regulators to defend the currency have failed, as visible by the market sentiments. Spot Rupee is expected to breach the all time low to trade near 62.00 levels. Measures taken by the RBI will hamper the growth in the short-term period as India’s own record high current account deficit is at 4.8% of GDP and existing fundamental weakness has further depreciated the Rupee. The trading range for the Spot USD/INR pair is expected to be within 60.70 to 61.50.
It is recommended to be cautious and Buy USD/INR Futures on dips with the appropriate stop loss as the rupee at this stage is expected to depreciate against dollar. Pivot Point for the Pair is at 60.75.
Last week the RBI as expected kept policy rates unchanged, the Repo rate at 7.25%, Rev Repo at 6.25%, CRR at 4% and MSF at 10.25%. The steps taken by the RBI are mainly focusing on exchange rate stability which can hamper growth in the short-term period as India’s own record high current account deficit at 4.8% of GDP has made the rupee vulnerable. As per RBI, at present their priorities are to stabilize the rupee, support the growth and to keep down the inflation. Measures taken by the regulators are in line to recover from this situation. The steps taken to revive the rupee condition will not change India’s situation overnight, as to recover from this, India will have to control inflation, increase the foreign fund inflows; and also will have to increase the manufacturing and production base to continue the India’s growth story.
The weaker than expected payrolls number in addition to the caution in the Fed’s statement suggest that the balance of risks to monetary policy have shifted. While one payroll report may not be enough to dissuade the Fed from tapering in September, it certainly decreases its urgency. Between now and the next FOMC meeting, the Fed will be closely monitoring incoming economic data. We have one more payroll report before the next FOMC meeting. If it is as disappointing as the one last week, the chances of tapering in September will diminish even further.
This week, the focus will be on the non-manufacturing ISM. The market expects a pick up to 53.0 from 52.2 in June. This survey is an important gauge of strength in the largest part of the economy, thus, a strong reading of 53.0 or above could help negate some of the effects of the weaker payrolls data and help USDJPY back on its journey to 100.00 and beyond.