Last month, dollar-rupee was very volatile, trading in a wide range. The rupee made a low of 69.23 and peaked at 71.53. But off late, specifically in the past two weeks, it has been extremely range bound, trading between 70.80 and 71.50.
Domestically, the rupee over the past few months has been hit by numerous headwinds like the key state election, Brent oil rebounding to $60 per barrel and fears of breach of the fiscal deficit target. Even though growth expectations are still on an uptick, the fiscal deficit remained a major concern on the back of shortfall in revenue collections from the goods and services tax (GST) and increased spending to appease farmers and middle-class population in an election year.
Sure enough, the Interim Budget announced major relief for farmers, SME's and individual taxpayers, including easing income tax rules, favourable loan terms for small businesses and even direct cash transfers to small farmers. The government has revised the fiscal deficit target for FY19 up to 3.4% of GDP from the previous Budget estimate of 3.3% of GDP.
The market will be keenly watching the outcome of Reserve Bank of policy (RBI) monetary policy which is due on February 7, along with the stance on inflation and interest rates. The market expectation is that RBI may change its stance from 'calibrated tightening' to 'neutral' although it may not consider any interest rate change.
Dollar weakness is likely to continue on the back of Federal Reserve's dovish stance in the recent Federal Open Market Committee (FOMC) meeting and uncertainty on the US-Sino trade deal, which has led to fears of a slowdown in global growth in 2019.
In January, DXY made a high of 96.95 but is currently trading much lower at 95.19 a day after Fed said it would be "patient" on a further gradual increase in interest rate. Technically, DXY could hit 93.5 levels if a support level of 95.00 breaks.
Uncertainty in the financial markets has risen as China's annual growth rate declined to 6.6% - the slowest pace since 1990. The slowdown in the economy was due to a drive to cut regional government and corporate debt as well as due to China's trade war with the US. Eurozone is likely to undershoot its inflation projections for this year due to lower oil prices and the European Central Bank (ECB) is seen giving up for now on plans to normalise policy any further and it is more likely to provide further stimulus, rather than less. "No deal" Brexit would hurt both the EU and Britain's economy. Sterling fell after British lawmakers rejected most amendments that aimed to keep Britain from leaving the EU.
On the technical front, key support for the domestic pair is placed at 70.80 levels. A breach of which could see it slip further down to 70.30 levels. On the upside, a break above 71.55 could push the pair further up to 72 levels which could be a bit short lived as exporters would start participating aggressively above 72 levels.
The movement in the dollar-rupee is going to be very volatile in coming months on the back of Lok Sabha elections, Brexit negotiations and the US-China trade talks may support risk sentiment. The expected trading range for rupee is to be between 70.50-72.
SEE-SAW MOVEMENT
- The expected trading range for rupee is to be between 70.50-72
- On the technical front, key support for the domestic pair is placed at 70.80 levels
The writer AVP - forex risk consulting with Mecklai Financial
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The market will be keenly watching the outcome of Reserve Bank of policy (RBI) monetary policy which is due on February 7, along with the stance on inflation and interest rates. The market expectation is that RBI may change its stance from 'calibrated tightening' to 'neutral' although it may not consider any interest rate change.
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