Indian rupee heads lower after seeing recovery; trades around 72.64 per dollar

The recent high is likely to pose short-term resistance to the pair and consolidation within support at Rs 70.80-71.30 and resistance at Rs 72.50-72.90 zone could be expected for the next 1-2 week…

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After a small recovery, the Indian rupee fell to a day’s low at around 72.68 per dollar. It has recovered a bit during the day after it opened lower by 67 paise at 72.52 per dollar.

It is trading lower by 79 paise at around 72.64 per dollar versus Friday’s close 71.85.

The government on Friday announced an array of steps, including removal of withholding tax on Masala bonds, relaxation for foreign portfolio investors and curbs on non-essential imports to contain the widening current account deficit (CAD), which has widened to 2.4 percent of GDP in April-June, and check the rupee’s fall against the dollar.

Navneet Damani of Motilal Oswal Financial Services said, “The recent high is likely to pose short-term resistance to the pair and consolidation within support at Rs 70.80-71.30 and resistance at Rs 72.50-72.90 zone could be expected for the next 1-2 weeks.”

“Meanwhile, lower support is at Rs 70.50 and medium-term bias (for next 1-2 months) remains bullish above the same with a test of the ‘Cup & Handle’ target of 74.20 looking likely. Only sustained a break of Rs 70.50 would point towards a bigger correction in which case the pair could decline towards major support at Rs 68.50,” he added further.

Rupee in the last couple of sessions rose against the US dollar on the back of a report that the PM is going to hold an economic review meeting during the weekend. In the economic review meeting, the finance minister announced some steps to curb the volatility of the currency. The government plans to take measures to cut down “non-necessary” imports, ease overseas borrowing norms for the manufacturing sector and relax rules around banks raising masala bonds, or rupee-denominated overseas bonds, according to Motilal Oswal report.

Ajay Bodke, CEO PMS at Prabhudas Lilladher said, “The measures signal government’s intent to stem the panic that had gripped the currency market. However, the impact of most of these measures would be felt not immediately but over the next few months. What the government needs to focus on is how to address the structural deficiencies that have plagued export competitiveness of various sectors and what has hampered the indigenous development of sectors such as electronics and capital goods that has led to surging in their imports adversely impacting trade & current account deficit.”

“Lastly, rather than focusing primarily on how to fund the growing CAD policymakers need to think on how to contain it. Many countries with growing twin deficits are experiencing a meltdown in their currencies, rising bond yields and swooning equity markets in these times of heightened risk aversion. A government must strictly adhere to fiscal prudence & its budgeted deficit target as well as resist the urge to embrace populism in an election year or else the typhoon of tumult is bound to batter the Indian shores again, he said further.

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