In the backdrop of big-ticket events such as RBI's monetary policy review and the Union Budget, the rupee traded in the range of 49.8 to 50.5 against the US dollar over the last fortnight. While it is still below the 50-level mark, the rupee gained marginally (0.04 per cent) vis-à-vis the dollar to close at 50.39. Against the euro though, the rupee lost 0.5 per cent to close at 66.53. The euro has been a gainer (0.7 per cent) against the dollar too over the last fortnight and currently yields $1.32 per piece. The weakening of the dollar against major currencies is reflected in the 0.2 decline in the Dollar Index (currently 79.69).
Budget provisions
Among the factors which supported the rupee against the dollar over the last two weeks was the 0.75 per cent cut in Cash Reserve Ratio (CRR) announced by the RBI before the monetary policy review. This infused Rs 48,000 crore into the banking system. The IIP growth for January also came in strong at 6.8 per cent though skewed sectoral growth numbers have given rise to doubts about the veracity of the data. The rupee also gained on Budget day aided by announcements such as allowing external commercial borrowings (ECBs) for stressed sectors, and enabling qualified foreign investors (QFIs) to access the Indian corporate bond market. These measures may help foreign fund flow into the country. On the other hand, the Budget provisions, such as providing for General Anti-Avoidance Rule (GAAR) and tightening norms with respect to Tax Residency Certificate, may negatively impact FII flows from questionable sources. While these are welcome steps to curb round-tripping and black money flows, the rupee could come under pressure if FII flows dip significantly. Steps such as retrospective amendments to the Income Tax Act, of which there has been wide criticism, may also impact investment sentiment. The euro's good run over the fortnight can be attributed to positive news flowing out of Greece , and IMF approving a loan of euro 28 billion to the country.
Dollar rupee outlook
The rupee declined to the low at 50.7 on March 7 and is moving in a band between 49.8 and 50.5 since then. This shallow move implies that the short-term trend continues to be down. The currency is however halting at key short-term support. Reversal from here can result in the currency vacillating between 48.6 and 50.7 in the months ahead. Move below 50.7 will pull rupee lower to 51, 51.4 or 52.1 in the upcoming weeks. This negative short-term outlook will continue as long as the currency trades below 49.4. Target on a move above 49.4 is 48.6.
USD-INR future
The USD-INR contract is in an uptrend since the low of 48.8 recorded on February 27. Short-term traders can buy in declines with a stop at 50.1. If the contract holds above this level, it can move on to 51 or 51.7 in the upcoming sessions. If the contract declines below 50, next supports are 49.7 and 48.8.