Anjana Mittal | Jun 25, 2013 05:32AM ET
Rupee’s attempt to stabilise over the first half of the week was completely squashed as it was subjected to renewed selling pressure over the second half and it dipped to fresh record lows near 60 against the US dollar. There was a marked deterioration in wider emerging-market sentiment following the Federal Reserve meeting which had a serious rupee impact. The Indian rupee fell 1.72 percent in the week, its seventh successive weekly loss. It slumped to a record low of 59.9750/9850 on Thursday amidst an emerging market sell-off sparked by the Federal Reserve's signal of a rollback in its monetary stimulus.
Last week started with RBI’s announcement of Mid-Quarter monetory policy review and as widely expected there were no changes in the key policy rates. RBI highlighted the upside risk to inflation due to increase in administered prices. It further added that the future stance of Monetary Policy will be determined by growth, inflation and balance of payments situation in the coming months. The Trade data for the month of May was also released and it showed that the trade deficit had risen to $20.14 billion as against $17.8 billion in the month of April -2013. The exports fell by 1.1% while imports rose by 6.9%. The gold imports rose by $15.88 billion in the months of April and May 2013. There were some inflows from the HUL open offer which could give support to rupee for a very brief period only. Markets continue to remain wary of central bank intervention, while government officials are expected to soon unveil measures directed at opening more sectors for foreign investment. The rupee is among the most vulnerable emerging market currencies given its hefty current account deficit. That makes the current account deficit data this week a key indicator for currency markets, which will also closely monitor global movements in the dollar. Differential between US Treasuries and Indian G-Secs is narrowing thus resulting in limited returns if one takes into account hedging costs. Forward premia ended higher. Annualized forward premia for 1mth, 3mth and 6mth ended at 6.67%, 6.10% and 5.85% respectively.
In Europe, the EC sentiment index along with the German Ifo will give a reading of European sentiment. Final GDP data from the UK and France for the first quarter are also on tap. On the domestic front, commodity tailwinds have worked well for India. Inflation is down, there is some cushion on the current account, and some fiscal adjustment challenges have eased. However, there are now challenges on the capital account side. With it's 4%+ CAD and rising external debt, India is vulnerable to the expected tapering of equity and debt inflows. Even though policymakers have expressed concerned over Rupee’s slide and said that they will keep a close watch on the market but the factof the matter is that RBI is really not left with much ammunition todefend the Rupee even though they will keep stepping in at appropriate times to stem volatility. However, USD strength story still seems far from over and it looks in a mood to explore further un-chartered territories. Hence, USD/INR pair remains buy on every dips. In the current scenario hope for India can come from (1) continued expansionary policy by other Central Banks, (2) further declines in commodity prices and (3) pro-active measures by domestic policy makers (on both policy change and execution). The announcements by the Cabinet Committee on Economic Affairs (CCEA) on 21st June were a positive step in this direction and looks like there is more to come. The Economic secretary Mr. Mayaram has proposed new FDI liberalization plan which has been endorsed by the Prime Minister and will be put to GOM in a week or two for final decision.
Technical
Upside trend in USD/INR pair is still intact and a break of 60 levels in pair cannot be ruled out. However several technical indicators are suggesting that the pair is in overbought condition and a corrective pullback is due. On the daily time frame in technical chart 58.60 is the crucial level for Rupee to gain any further. 60.50 seems to be crucial resistance and 58.60 support level in this week for USD/INR pair. For short term upside trend in USD/INR pair will emain intact till it breaches 56.70 level in near future.
Weekly Trend: Slightly bearish with mild correction expected in USD/INR pair. Expected Range : 58.60 - 60.50.
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