Rupee pain to persist :: Business Line

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Christmas week brought no special cheer for the Indian rupee and it fell for the third consecutive week. The rupee opened flat at 63.3 and recorded a high of 63.135 on Monday. The currency was beaten down after a strong US GDP data release on Tuesday. The rupee fell to a low of 63.685 on Friday before closing at 63.57, down 0.42 per cent for the week.

Muted action on the foreign inflows front due to the holiday season and a sell-off in the equity market kept the rupee under pressure. Foreign portfolio investors (FPIs) bought $199 million in debt and sold $454 million in equity in the past week.

The year will end with fiscal deficit and balance of payments data releases on Wednesday. The first data release of interest in the New Year will be the HSBC Manufacturing Purchasing Managers’ Index on Friday.

Market participation is expected to return to normalcy only by next week. For the year the rupee has outperformed most of its emerging market peers and is down just 2.8 per cent against the dollar. Record foreign inflows into the Indian debt segment have lent solid support to the currency. The debt market has attracted a whopping $26.38 billion so far in 2014 and the inflows into the equities stand at $16 billion.

Dollar outlook

The US economy, growing at a robust 5 per cent in the third quarter, pushed the dollar (90) index up. It crossed the level of 90 for the first time since 2006. While the index recorded a high of 90.16, it failed to extend the rally and got stuck at around 90 levels for the rest of the week. If the index can sustain above 90 and gain momentum, a rise to 90.5 and even 91 looks likely in the coming week. On the other hand, a reversal could trigger a corrective fall toward 89 or even 88 in the coming weeks.

Rupee outlook

The outlook for the Indian rupee is bearish. It has immediate resistance at 63.5 and key short-term resistances are at 63.35 and 63. While the currency remains below 63, a further fall to 64.2 looks likely in the short term.

However, a break above the immediate resistance at 63.5 could prove a temporary relief for the rupee and take it higher to 63.35 this week.

A further break above 63.35 could see the rupee strengthen toward 63.

This is a key resistance for the rupee and the short-term strength in the currency is expected to be limited to this level.

The medium-term bearish view remains intact. Strong resistances are at 62.5 and 62. Below these levels, a fall to 64.83 — the 61.8 per cent Fibonacci retracement level — looks likely in the medium term.