Rupee may find support around 54: Nirmal Bang

Nirmal Bang has come out with its report on currency. According to the research firm, 54.00 should act as a good support for the USDINR pair in near future.

The U.S. dollar rallied against the yen on Wednesday after a decision by the Federal Reserve to continue its aggressive monetary easing fueled optimism about the U.S. economic recovery. The euro rebounded from a four-month low against the dollar as immediate fears about a financial meltdown in Cyprus eased, with the small island country pleading for a new loan from Russia. The Fed said it will continue to buy $85 billion in mortgage and Treasury bonds per month despite growing concerns about the risks the purchases could pose. It said unemployment remains too high and fiscal policy has become somewhat "more restrictive," likely referring to the government's hefty spending cuts.

Sterling hit a two-week high against the dollar on Wednesday after Britain's finance minister did not use his budget to give as much leeway to the Bank of England to stimulate growth as some market players had anticipated. Minutes from the latest BoE policy meeting, showing less support than expected for further asset purchases, also lifted the pound as investors who had bet against the currency were forced to cover their short positions.

The Indian rupee recovered on Wednesday from early falls as worries over political instability eased and on the back of dollar sales by custodian banks and a state-run company. The partially convertible rupee closed at 54.36/37 per dollar versus 54.37/38 on Tuesday. The rupee initially dropped as low as 54.56, its weakest since March 8. Markets had been rattled by a double whammy on Tuesday, when a key ally withdrew support from the ruling coalition and the central bank said the room for future rate cuts was limited despite easing monetary policy by 25 basis points. Some of the concerns about the standing of the ruling coalition eased after the Indian government said on Wednesday it was still able to pass reform legislation in parliament, but ministers did not answer questions on whether it would call a snap election.

The rupee is likely to trade with slightly appreciation biased today after the US Federal Reserve pledged to continue with its asset purchase program in FOMC policy announcement yesterday. Moreover, the focus now shifts to Bank of Japan board meeting. We believe the new governor looks close to launching open ended asset purchase program. Any such development can trigger risk on trades in global markets and thereby can lead to strong inflows in Indian markets. However, we believe that 54.00 should act as a good support for the USDINR pair in near future.

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