Where Is The Rupee Headed?

Last year, when most emerging-market currencies were being slammed in the global marketplace, the rupee held on quite well at Rs 68 or thereabouts. The last few weeks, though, have been brutal for the currency, when it broke below the very long-term crucial resistance of Rs 68, according to technical analysts. 

The big question now in everyone’s mind is: where is the rupee heading? 

First, a rewind. The last time the currency came close to Rs 68 was in September 2013 when all major global currencies went into a tailspin following the US Fed’s sudden announcement of the withdrawal of its quantitative-easing programme. 

Back to the present: the rupee breached Rs 68 in June 2018, and has since been on a continuous decline, crossing Rs 70 to the dollar in late August 2018, and continuing the slide to the present Rs 74.2. 

Going by technical analysis, used by technical analysts to predict price movements, the outlook for the currency is not getting any better. 

Technical analysts predict that the rupee is likely to hit the Rs 79/80 mark by the ides of March 2019. 

“The monthly and quarterly charts of the rupee are definitely worrisome. Over five years, it held at the Rs 68 mark, but recently made a many-year breakout, followed by an ascending triangle. This suggests that it is likely to hit Rs 80 in the next six months,” says Abhishek Karande, technical and alternate strategist, IndiaNivesh.

Karande points out that monthly or quarterly charts offer a much clearer picture of the rupee movements because they take a historical perspective. “Longer time-frame charts are better for interpretation because the “noise” out there has been cancelled,” says Karande. 

On a three-month time-frame, the rupee appears likely to continue its downward journey and may even tumble to Rs 76-77 levels. “There is the possibility that we might reach there in a shorter time because the breakouts are parabolic as this is a multi-year breakout,” says Karande. 

Whenever there is a multi-year breakout, price movements are often sharper. Karande notes that, after a multi-year breakout, the not much upward movement for a long while is seen in the intermittent period. Once it breaks out, though, it is usually followed by a huge move. “This pattern is like a pressure cooker, which is brewing a storm beneath,” says Karande. 

This past week, the rupee breached the critical level of Rs 74, reacting adversely to the RBI’s monetary policy, in which the interest rate was left unchanged. 

Since April 2018, the currency has lost 13.2 percent. It was one of the top-four losers among select emerging-market currencies (Brazil, China, India, Indonesia, Malaysia, Mexico, Russia, South Africa, South Korea, and Thailand). 

Rising crude oil prices ($78 a barrel), the widening current-account deficit and FPI outflows are some reasons piling pressure on the rupee. Also, the global trade war between the U.S. and China, and sanctions on Iran are squeezing the currency.