Indian Rupee falls for 6th straight month in June; may remain patchy on capital outflow, dollar liquidity
By Dilip Parmar
The Indian rupee extended its drop for the sixth month in trot and closed to life low level of 78.98. India’s expanding trade gap and capital outflows are raising new risks for the rupee, as the currency plunged to a record low it also adds to inflation woes. Going ahead path for the rupee remains patchy as multiple factors are unfavourable from domestic as well as from the overseas front. Whether it is capital outflows or dollar liquidity all are indicating further depreciation. The only factor which curbs the weakness in the rupee will be the central bank’s intervention and the government’s policy to incentivize the dollar inflows. In efforts to that, we have seen the government increase the import duty on gold while the central bank has aggressively intervened in forward and future in the last few weeks.
India’s foreign exchange reserves, which can cover about 10 months of imports, have slumped around $50 billion from a peak in September to $593.32 billion, in the week of June 24 as the RBI searched for a stable currency regimen to fight imported inflation.
Back to technical aspects, spot USDINR has been in a bullish trend with most of the indicators and oscillators in favour of bulls. The only thing which makes them uncomfortable will be overstretching of price in the last six months. There could be some relief rally which will be on the cards whether it is equities or currencies. USDINR is having support at 78.50 while on the higher side resistance is placed around 79.80.
July is another month for forex markets as the big three central banks, ECB, Federal Reserves and Bank of Japan, will meet again for rate setting. Though, the market is already priced in for a rate hike from two or three banks but the eyes will be on their statements as in the last one-month period many commodity prices have tumbled which could ease the inflation worries.
(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own.)