CURRENCY CALL. Global turmoil mounts pressure on rupee

Crude oil has once again rattled global financial markets. Oil price fell below $30 in the past week as sanctions on Iran were lifted. Iran is expected to pump in more oil into a market that is already awash with oversupply.

Further, the International Energy Agency (IEA) in its monthly oil report released on Tuesday has forecast that demand could fall further this year and with the glut in the market, prices can only head lower. All the mayhem in the oil market weighed on the Indian rupee, which fell below its support at 67. This support has been limiting the downside in the currency for some time now.

On Wednesday, the rupee extended its fall to test 68 levels for the first time since September 2013 and made a low of 68.1650 before closing at 67.96, down 1.6 per cent for the week.

With no major macro-economic data release scheduled for this week, the rupee can continue to dance to global tunes in the coming days.

There is wide divergence in the way global financial assets have moved in relation to each other since the beginning of this year. Interestingly, the dollar has not gained any momentum from the recent rout in the global markets. The dollar index is stuck within a range of 98 and 99.5, even as oil prices have slumped about 23 per cent so far this year. If it’s not the dollar, then what else is gaining from the recent crisis? The Japanese yen and gold, which are up 3 per cent so far this year, appear to be stealing the safe haven status from the greenback. Even among the major currencies, while the British pound and the Australian dollar have weakened against the US dollar so far this year, the euro, Swiss franc and yen have strengthened.

The near-term outlook for the rupee is bearish. Immediate resistance is between 67.65 and 67.5. The rupee could gain strength to test 67 only if it breaks above 67.5. At the moment, 67 is a key short-term resistance for the rupee, which is expected to cap the upside in the coming week.

On the downside, as long as the rupee trades below 67.5, a fall below 68 looks likely in the near term. Such a fall can take it lower to 68.4 and 68.6 in the short term.

As we have been reiterating in this column over the last few weeks, rupee has been moving within a bear channel for a long time. The channel support is poised in the 68.4-68.6 zone. This support zone will need a close watch in the coming days. If the rupee reverses higher from this support zone and manages to break above 68, then the currency could strengthen to 67 thereafter.

But on the other hand, if the rupee breaches 68.5, it could head lower. Such a fall will increase the danger of the rupee hitting fresh lows in the coming months.