Rupee seen on skid row, next stop 54/$

The rupee on Monday sank to a new low. It may not be done falling, predicts the Street.

“The level which we saw on Monday was a very critical technical level and if we are able to maintain this for a day or two, then we can see that the next resistance level build at 53.20 per dollar,” said Pramit Brahmbhatt, CEO, Alpari Financial Services.
Experts opine that the panic in the market over the last month and a half has been due to disappointing economic news on the domestic front.

Chetan Ahya, economist and a managing director at Morgan Stanley, said the recent risk aversion in global financial markets has exposed the vulnerability of India’s macro conditions.
“Both trade and capital flows will likely maintain their downward pressure on the currency,” he said in a note.

J Moses Harding, executive vice president, IndusInd Bank, concurred, saying the immediate concerns are from the widening trade gap; political issues in attracting long-term capital flows and growth issues leading to a weak stock market.

So, is the Reserve Bank of India (RBI) intervening to support the rupee?

“The RBI has been intervening at all levels, even when the rupee hit the all-time low. Whenever there is excess volatility, RBI has been supplying dollars,” Harding said.

The consensus range on the Street was 51-54 per dollar in the short term, but the speed with which it moved from 51 per dollar to current levels is astonishing, Harding said.

“The immediate target is for quick run into 54 per dollar to complete end-to-end move within the set short-term range of 51-54 per dollar,” he said.

“There is no positive factor. And RBI support will be limited to due to limited foreign exchange reserves and right rupee liquidity,” he said.

“So, we could see rupee move to 54 mark pretty soon,” said Harding who also heads market and economic research at IndusInd.

Siddhartha Sanyal, chief economist, Barclays Capital, however, says unlike 2008-09, India will possibly still not face any sizeable balance of payment deficit in the coming quarters.

“So, neither our own balance of payment fundamentals nor the rupee’s current valuations suggest any further sharp downside from here. But risk appetite globally is in uncertain territory and that remains the key risk,” he said.