Currency Call. Relative calm awaits rupee

It was a volatile week for the Indian currency market last week.

The currency opened on a positive note at 62.37 on Monday and rose to a high of 62.14 by Tuesday. But it failed to sustain higher and started to lose ground thereafter. Pressure started to mount from Thursday as the markets turned nervous after Saudi Arabia launched air strikes on Yemen.

Oil prices soared and the Indian rupee tumbled to a low of 62.79 on Friday. However, the currency made a smart recovery in the final trading sessions to close almost flat for the week at 62.42 (up 0.08 per cent). Market reports suggest that exporters selling the dollar caused the pullback on Friday.

The coming week is set to be a curtailed trading week with just two trading days. The Indian currency markets are closed from Wednesday for the rest of the week due to bank and public holidays. Two key macro economic data points are due for release in this truncated week.

The fiscal deficit data release is on Tuesday and HSBC’s Manufacturing Purchasing Managers Index (PMI) data will be out on Thursday. Both data sets will be released only after the markets close for the long weekend on Tuesday and may thus have limited impact on currency moves this week.

On the global front, much-watched US unemployment numbers are due for release on Friday, when most financial markets across the world are closed for Good Friday.

Reactions to these data points could influence the rupee next week, while this week could be relatively calm.

Data releases from the US in the past week were mixed. New home sales surged while existing home sales picked up slightly.

The US economy grew at a much slower pace in the fourth quarter, at 2.2 per cent, as against the market expectation of 2.4 per cent. The economy registered growth of a robust 5 per cent in the previous quarter.

Mixed housing sector data, a slowdown in growth and falling exports could all prompt the US Federal Reserve to stay patient on rate hikes.

The Federal Reserve Chair, Janet Yellen, in a speech on Friday said that rate hike is on the cards “later” this year, while expressing her concerns on the slowdown in some sectors.

The US dollar index (97.29) closed on a mixed note last week. It fell to a low of 96.17 intra-week, but recovered well from the low. The index has resistances at 97.65 and 98.35, which could be tested in the coming week. Only a strong break above 98.35 will turn the view positive and take the index higher to 99 and 100 levels thereafter.

On the other hand, a reversal from 98.35 could keep up pressure on the downside and drag it down again to 96 levels. It will also keep the possibilities alive for the index to test 95 levels in the short term.

Two key data releases are due from the US this week, which could influence the dollar movement. The first is trade balance data on Thursday.

A pick up in exports could be a positive for the dollar index as the Federal Reserve has expressed its concerns about exports in the recent meeting. The second important data is US unemployment numbers, critical as a signal to recovery.

The sudden and sharp reversal of the rupee on Friday from the low of 62.79 was a surprise. On the charts, the weekly candle reflects indecisiveness in the market. This has made the immediate outlook unclear for the rupee.

There is a possibility of the rupee strengthening to 62.2. A test of even 62 cannot be ruled out in the short term. But strength in the rupee is expected to be limited as there is key short-term resistance at 61.95. This hurdle is unlikely to be surpassed immediately. Short-term support for the rupee is at 62.82. A break below this can pull it down to 63.1 and 63.25.

The medium-term view continues to remain bearish, with key resistances at 62 and 61. A fall to 63.6 and 64 is possible.

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