Outlook on rupee by Abhishek Goenka

Outlook on rupee by Abhishek Goenka, Founder & CEO of India Forex Advisors

After touching the low of 55.13 in the month of March, rupee started appreciating supported by robust flows and moved towards the level of 53.60 in May. Since then, we are continually witnessing a weak trend in the rupee owing to global factors such as robust data from the US and ongoing concerns in the Euro zone. Looking the pace of rupee movement, it had taken 9 days for the rupee to appreciate from 55.13 to 53.63 whereas it took only 3 days to depreciate from 53.63 to 56.00 levels seen recently. This shows the pace of depreciation in the rupee is more. The Indian rupee has plunged by around 2 percent in just a week. Ironically during the same period the markets saw inflows of up to USD 2.4bn dollars. This brings us to the riddle - what is driving the rupee lower to nearly its 8 ½-month low and ahead too it appears that the losses will likely extend. In the absence of any major news from the domestic markets, the international forces will likely drive the path of the rupee. The main reason causing the rupee to fall is the immense strength of the Dollar Index, which has touched its three-year high level of 84.30. The record setting performance of US equities and the improvement in the labour market has made the Americans more optimistic about the outlook for the US economy, thereby spurring greater hopes of QE tapering. The Federal Reserve is talking about tapering asset purchases at a time when European officials are considering more aggressive monetary easing measures such as negative deposit rates. The fact that the Euro zone is in a recession is just another reason why investors are snapping up dollars. We note a recent interesting inverse 'Head & Shoulder' pattern on the USDINR chart where the prices have breached the neckline of 55.40. In case this pattern holds true and the prices break above 55.40 on a consistent note (say for two weeks), then we might see a wild move in the Indian rupee going forward and we can easily target 57-58 levels. Even psychologically, the levels of 55 are seen as important. The breakout above these levels has triggered stop losses making the investors cover their long positions resulting in further increasing the demand for the dollar. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.