The Indian rupee ended at a six month low of 55.41 to the dollar on Tuesday. According to Moses Harding of IndusInd Bank the key level for the Indian currency is 55.30/USD and if it stays above then the next range to watch out for would be 55.88 and 56.37.
The weakness seen in rupee is due to dollar strength and a weak macro-economic scenario in India, Harding told CNBC-TV18.
"To seek the reversal of the rupee fortunes from below 54 to above 55, I think there is a sort of a panic among the hedges and the traders. So, it is a combination of unwinding of short dollars both on the positions of hedge book and the trading book," he elaborated.
Below is the edited transcript of Harding’s interview to CNBC-TV18.
Q: What was the reason for which the rupee slid to that six-month low level yesterday and what is the prognosis for today?
A: It is a combination of both external and domestic cues. Externally, there is a general dollar strength. All currencies are weakening against the dollar globally and domestically, the weak macros continue to weigh with S&P also giving a caution on a possible downgrade or delay in change in outlook.
Moreover, the market is also heavily oversold in dollar terms. Exporters are also fully covered while importers are not. To seek the reversal of the rupee fortunes from below 54 to above 55, I think there is a sort of a panic among the hedges and the traders. So, it is a combination of unwinding of short dollars both on the positions of hedge book and the trading book.
Q: Yesterday the rupee went very swiftly from 55.1 to 55.4. So, with that in mind, how much incremental weakness do you see today and what kind of levels will you be watching out for?
A: For the rupee, 55/USD was a crucial level that most expected the rupee to hold and most were positioning themselves for 54-55/USD consolidation range on the dollar-rupee. The 55 figure then gave away stop loss triggers and importers rushing in to cover, exporters to rushing in to unwind their cover, so that caused the one way run on the dollar-rupee demand.
Also, most of the importers especially the cash demand from oil imports and others were also made in the absence of supply. So, it is a kind of one way driven market, demand driven market and if rupee stays above 55.30, the low that we saw in 2013, then we are pulling in 55.88 and 56.37 into the radar.