The Indian Rupee depreciated last week to close at 46.49. The currency snapped a six straight weekly rise last week.
Though the short-term trend in the Rupee remains up, we could witness depreciation in the near-term on the back of dollar demand by oil importers during the end of the month in the domestic markets.
In the last week, the rise in the Rupee was capped by a decline in domestic equity markets that raised concern over capital outflows from the country. Also, dollar demand from importers to make their month-end payments put a cap on the upside.
The Sensex ended 348 points lower last week, losing ground by 2.2%. This sharp decline in equities was a major factor that put pressure on the downside. Banks purchased dollars due to arbitrage on price differentials between the domestic and offshore markets.
Month-end dollar demand by refiners could lead to weakness in the Rupee. We could witness some depreciation in the Rupee for the near-term as dollar buying in the domestic markets picks up during the end of the month as importers make payments for their purchases.
Dollar Index hits new 2009 low last week
The Dollar Index weakened in the last week and touched a 14-month low on Tuesday. The downfall in the dollar is mainly on the back of rise in risk appetite on economic optimism and lower interest rates in the US.
We expect the dollar to continue to weaken further as the Federal Reserve signaled that record low borrowing costs would remain for some time in the near future.
This factor coupled with earnings optimism further encourages investors to but riskier investment assets and shun the dollar. The US government announced that they were winding down the major banks portion of the TARP program as they do not need new assistance from the government compared to a year ago.
This indicates that the US economy is on the road to recovery which could further boost optimism and lead to higher demand for investment avenues like equities and commodities.
Low interest rates will reduce the attractiveness of the dollar and keep the currency under pressure in the near term.
Future Outlook
In the short-term, we expect the Rupee to appreciate as so far in 2009 foreign funds have been net buyers to the tune of $14 billion. But in the coming week, the Indian Rupee could depreciate before taking off to another appreciation spree as dollar demand in the domestic markets could cap the upside in the Rupee.
Import bills of oil refiners have risen in the last few days on the back of a rise in crude oil prices that has pushed the import costs higher. Due to this demand for the dollar could rise in the domestic markets. In the coming week, the Rupee could test level around 47.10 – 47.24 on the higher side. Importers can hedge their positions around 46.12 – 46.18.
Technical Outlook
Spot USD/INR Weekly Chart
The Spot Rupee traded lower in the last week to close at Rs.46.49. During the week, Rupee depreciated to 46.82. In the last week, Rupee closed below its 10 Day-EMA (47.35) and 30 Day-EMA (47.92).
Daily MACD Histogram is trading in the positive territory, and the weekly MACD histogram is also trading in the positive territory. 14-Day RSI is trading at 43 levels. For the week, support is seen at 45.95/45.45 whereas resistance is seen at 46.95/47.35.
