Rupee fell to a 10-week low of 55.9 on Monday and lost 0.65 per cent for the week against the dollar. It closed at 55.45 on Tuesday.
Three-month rupee forward on the OTC is quoting at 56.3. Rupee was at its all-time low against Euro, closing at 71.77 on Tuesday and was down 1.75 per cent for the week.
Global uncertainty and month-end dollar demand related to oil purchases led to the fall of Indian Rupee (INR) against the dollar. Oil refiners were the biggest buyers of dollars in the domestic currency market and have been buying continuously over the last few days to meet their month-end import commitments.
European finance ministers agreed to ease the terms on emergency aid for Greece. Euro was not too affected by the news and was down 0.33 per cent since Tuesday. Fiscal cliff concerns weighed on the dollar. The dollar Index, which tracks the greenback against six major currencies was down one per cent at 80.51 on Wednesday.
The rupee’s slide was halted after Moody’s maintained its stable outlook on the nation’s Baa3 sovereign rating which is the lowest investment-grade rating, though fiscal deficit remains a hindrance for an upgrade.
Finance Minister P. Chidambaram’s comment that the Government will be able to manage the fiscal deficit at 5.3 per cent for the year through March compared to 5.8 per cent last year also helped rupee to stay firm.
Going forward, domestic political environment will determine the movement of INR. Over the next month, the Government is going to consider and pass about 25 legislative Bills in Parliament including, key reforms such as approval of FDI in multi-brand retail, fuel subsidy and liberalisation of the insurance and pension sectors.
A possible sovereign rating downgrade may result in further depreciation. Standard and Poor’s has signalled a one in three likelihood of a rating downgrade and Fitch will also review India’s rating in December.
Dollar rupee outlook
Rupee made a definitive move below the 55 mark over the past week. It went on to hit the low of 55.9 against the greenback on Monday before gaining slightly. The next support zone for the dollar-rupee pair is around 56. This level supported the rupee in August and September this year.
A sharp break beyond 56 will give the next target at 57.3 for the rupee. As explained in our last column, the dollar-rupee pair is likely to form a broad trading range between 51 and 57 for a few more months. The currency could remain volatile in this trading zone for a few more months.
Key short-term resistance is at 54.1. This level needs to be crossed for the short-term outlook to turn positive again.
USD-INR future
This contract broke higher last week in line with our expectation. Immediate targets for this contract remain at 56.2 and 56.5. Short-term traders can hold their long positions with stop loss at 55.4.