Technical Analysis

Resurgent euro weakens dollar, aids rupee

Anand Kalyanaraman | Updated on March 12, 2018 Published on October 15, 2011

After its steep fall against the US dollar in the fortnight ended September 23, the Indian rupee has more-or-less held its ground , hovering around the 49 per dollar level.

Taking cues from the improving sentiment in the Euro zone and a strengthening Euro, the USD-INR pair has moved in the range of 48.75 to 49.46 over the past three weeks. On Friday, the INR closed at 49.02 a dollar, up 0.8 per cent from 49.43 on September 23.

Euro lift

If RBI intervention was considered instrumental in the rupee not breaching the 50 per dollar level during its free-fall in September, the subsequent range-bound movement in the USD-INR pair seem to be influenced, in good measure, by positive developments in the Euro Zone. The German Parliament approved a crucial increase in the EU bailout fund in the fag end of September. Now, with approval from Slovakia (the last country in the zone to ratify the fund) finally coming through last week, the decks seem to have been cleared for the €440 billion European Financial Stability Facility.

This resulted in a marked improvement in sentiment towards the Euro, which gained as much as 3.8 per cent against the USD last week to close at 1.388.

The sharp gain registered by the euro suggests a reversal in the risk-aversion induced flight-to-the-dollar seen in September.

This seems to have rubbed off positively on many other currencies including the INR, which over the last week has gained 0.3 per cent against the dollar.

The rupee's gains against the dollar, though, seem to have been tempered by continuing concerns on the macro-economic front. The latest industrial production numbers were lacklustre, and inflation stubborn.

Also, the INR has weakened against the Euro, given the sharp rally in the latter.

As on Friday, a euro yielded Rs 67.60, up 1.7 per cent from Rs 66.50 on September 23, and up 2.4 per cent from 66.04 on October 7.

Rub-off on commodity prices

The rupee, if it continues to strengthen against the dollar, may bring relief to Indian importers. However, this may be offset by an increase in commodity prices which seem to have received a fillip from the improving economic sentiment in Europe.

The price of crude oil (Brent), for instance, has gone up almost 9 per cent over the last week to around $115 a barrel.

Also, demand for gold seems to be again picking up with the price for the yellow metal up 1.2 per cent over the past week, and up 3.3 per cent over a fortnight.

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