The rupee ended the week 0.5 per cent lower against the dollar to close at 54.58. The current account deficit which touched an alarming 6.7 per cent of GDP in the December quarter weighed on the rupee which touched an intra-week low of 54.9 on Thursday. But over the next three trading sessions, the currency recouped some lost ground.

This was based on expectation that the monetary easing by the Japanese central bank will boost inflows in emerging markets, including India, through carry trades (borrowing cheap to invest at higher rates). Also, RBI Governor D. Subbarao’s comment that the high current account deficit won’t lead to a 1991 kind of crisis situation seemed to allay concerns to some extent. Against the euro, the rupee lost 1.8 per cent over the week to close at 71.43.

One-month implied volatility of the rupee against the dollar, a measure of expected movement in exchange rate that is used to price options, declined by 15 basis points to 7.82 for the week.

On Tuesday, three-month onshore rupee forwards traded at 55.66 (55.42 a week ago). Similar period offshore non-deliverable contracts closed at 55.59 against 55.47 last week.

In the global markets, the yen depreciated to 98.89 against the dollar from around 93.44 a week ago. This followed the unprecedented stimulus by the Japanese authorities to double the monetary base of the country to propel economic growth.

The yen was also down against all the G10 currencies over the week.

The European Central Bank kept the interest rate in the Euro Zone at 0.75 per cent for the 10{+t}{+h} month in a row. Though Mario Draghi said that they were open to the idea of cutting rates further if required, the euro area services PMI declined to 46.4 for March from 47.9 in February. Despite the disappointing economic data, the euro appreciated 1.8 per cent against the dollar over the week to trade at 1.3046. Expectation of liquidity from Japan flowing to riskier assets aided the common currency.

Technical analysis

Dollar-rupee outlook : The rupee depreciated to a low of 54.9 before reversing higher this week.

The dollar-rupee pair has been in a sideways range between 53.9 and 55 since end-February.

The outlook for the currency pair will remain weak as long as it trades below 53.7. Inability to move above this level will imply that the rupee can depreciate to 55.9 or 56.1 in the weeks ahead.

Conversely, the currency pair needs to move to 53.7 to imply that it can appreciate further towards 52.9.

Haruhiko Kuroda, Bank of Japan Governor, announced unprecedented stimulus by doubling the monetary base by the end of 2014 at his first policy meeting.

The yen depreciated to a low of 99.66 against dollar and was down against all the G-10 currencies.

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