Over the last fortnight, the rupee dipped almost 2.8 per cent against the dollar, to close at 52.95, a level last seen in January. Against the euro too, the rupee lost 2.8 per cent, to close at 69.6. With the economic and investment climate in the country still challenging, and concerns about rising current and fiscal deficit levels, the rupee may continue to be under pressure in the weeks ahead.
The positive effects of the repo rate cut by the RBI on April 17 dissipated quickly. Sentiment towards the rupee has soured in recent weeks with a string of negative news. Standard and Poor's downgraded India's credit rating outlook from stable to negative, fuelling concerns about the weakening economic climate.
The export numbers for March 2012 did little to assuage the nervousness with growth dipping 6 per cent even as imports surged 24 per cent. Lower growth in exports compared to imports over the last year has caused India's trade deficit to hit an all-time high of around $185 billion in 2011-12.
Manufacturing growth in the country has also been lacklustre, with growth in April the weakest in three months. The Purchasing Managers' Index (PMI) in April was at 54.9, compared with 54.7 in March.
Over the last couple of weeks, the euro gained marginally (0.14 per cent) against the dollar, and currently yields 1.314 dollars apiece.
News that the US Fed would continue with its dovish monetary stance contributed to the Dollar Index losing 0.3 per cent over the past fortnight. It currently trades at 79.24.
Technical Outlook
Dollar-rupee outlook : The rupee moved sideways in a narrow band between 52.4 and 52.7 over the past week. But the sharp decline on Wednesday made it close near the 53 mark.
The medium-term view for the currency pair has deteriorated with the close below 52.1. Next medium-term targets for the currency pair are at 53.5 and 54.3. The medium-term outlook for the currency pair will remain under a cloud as long as it trades below 51.4.
The short-term view for the currency remains down. Short-term resistances on the chart are at 52.4, 51.2 and 51.4. Strong close above 51.4 is required to turn the short-term view positive.
USD-INR future : This contract continued to move higher and recorded the high of 53.3 on Wednesday. The short-term trend continues to be up for this contract and traders can hold it with stop at 52.6. Subsequent supports are at 52.2 and 51.5. Short-term targets are 53.8 and 54.5.
EUR-INR future : This contract too achieved our first short-term target at 69.9. If the contract continues to move higher, the next target is 71.3. Traders can hold their long positions with stop at 69.2.