According to Mr. J. Moses Harding, Head Global Markets Group, IndusInd Bank, the rupee is trading just below the solid support level of 46.70-46.75 from where strong bounce was seen into 49.45 (in June-July 2009) and into 50.58 (in May-November 2008). A convincing move below 46.70-46.75 will open up the next target at 46.10-46.20 and 45.25-45.75.
IndusInd Bank's report:
Rupee extended its gains from day’s open of 46.88 for rally into intra-day low of 46.49 but could not sustain there for settling into 46.60-46.75 range before close of day at 46.67 against previous close of 46.89. There was decent arbitrage between NDF and on-shore dollar value to keep the supply mode in tact while importers supported the greenback at 46.50-46.60 through purchase of 1-3M forward dollars. The value of forward dollars is sharply down at 47.0 (3M); 47.40 (6M) and 48.25 (12M) making it attractive for importers and would be cause for worry for exporters.
Rupee is trading just below the solid support level of 46.70-46.75 from where strong bounce was seen into 49.45 (in June-July 2009) and into 50.58 (in May-November 2008). A convincing move below 46.70-46.75 will open up the next target at 46.10-46.20 and 45.25-45.75. Hence, it is important for RBI to push the rupee back into 46.75-47.00 to halt accelerated gains in rupee below immediate support at 46.50. In the meanwhile EUR/USD has traded both ends of the set 1.4650-1.4750 range with no momentum for break either-way while domestic bourse was weak unable to sustain over crucial resistance of 17150/5085. These two factors are good for dollar bulls to expect rupee reversal into 46.75-47.00. It is time for companies to take closer look at exchange rate risk in the balance sheet, especially for those who availed long term ECBs (when spot rupee was trading at 47-52 and higher LIBOR). It would also make sense for others (who availed at 40-47) to hedge part of the exposure as stop-loss while those exporters who entered into leveraged structured products could unwind part to de-link from mark-to-market provision impact. The forward dollar at below 47.0 (3M); 47.40 (6M) and 48.25 (12M) is not bad at all to hedge exchange rate risk (for importers) having seen spot rupee trading above 52.00 this year. It is conflict between greed and prudence. While prudence does not call for closing 100% of the risk (while rupee is on its bull-run), it would be better not to be greedy to keep entire exposure open when sharp reversal is not ruled out. We also can not rule out RBI bulldozing into the market when NDF arbitrage is squeezed out to push rupee back into 47-48. For today, let us stay tuned to 46.65-46.85 (within 46.50-47.00) and watch EUR/USD at 1.4650-1.4750 and SENSEX at 16600-16850. The bias would be for move into 46.75-47.00 on dollar recovery against Euro and bearish sentiment in the domestic bourse. The possible exit by FIIs in domestic bourse should also result in squeeze in the NDF arbitrage. Let us play the 46.50-47.00 range and would not wish to chase rupee gains beyond 46.50 as it would be short-lived and reversal may be swift to cause damage.
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