RBI props up rupee, resistance seen

Mny do not expect substantial fall for now, despite the present turmoil

The rupee on Wednesday fell sharply as foreign investors, eager to shed their emerging market (EM) exposure after seeing China’s growth rate slowing to a 25-year low, aggressively liquidated their Indian holdings.

The rupee opened at 67.85 a dollar and touched a low of 68.16, earlier seen on September 4, 2013. The Reserve Bank of India’s (RBI's) aggressive intervention ensured it closed at 67.96, down about 0.5 per cent from its previous close.

The Sensex, benchmark equity index at the BSE exchange, fell 640 points during the day but closed 417.8 points lower, at 24,062. The sell-off by foreign investors forced foreign banks to buy dollars through the day.

RBI, through public sector banks, sold dollars intermittently but at the end of trading hours stepped up the intervention quite aggressively. Exporters stepped in to sell dollars at around the lowest level of the day and the rupee strengthened back below 68, said currency dealers.

“The loss in the rupee is led by equity-related outflow but money should flow back in equities soon as valuations are looking cheap. RBI’s heavy intervention ensures the rupee doesn’t go out of sync,” said Aman Mahna, senior currency dealer with First Rand Bank.

He doesn’t expect to see the rupee touching 70 a dollar, even as some have begun predicting a drop below the record low of 68.85 on August 28, 2013. “Anything can happen these days but, technically speaking, 68.50 looks a good resistance level,” said Mahna.

Abhishek Goenka, head of currency consultancy firm IFA Global, continues to expect the rupee to remain in a range of 65.50-70 a dollar by Diwali. “Two-three rupees down from the present level and we are buyers (of dollars) and two rupees up, we are sellers,” he said.

The dollar index, measuring the its strength against other major currencies, strengthened only 0.05 per cent. The euro held its ground and the yen even strengthened 0.9 per cent. However, currencies in Asia bled in response to China’s slowdown. The Indonesian rupiah was down 0.8 per cent, the Philippines’ peso fell 0.7 per cent and the South Korean won by 0.6 per cent.

So far this calendar year, the rupee has fallen 2.7 per cent against the dollar, the second worst performing currency after the won's 3.2 per cent decline. However, against its trading partners, the rupee is still relatively stronger.

Raghuram Rajan, RBI governor, said on Wednesday at the World Economic Forum in Davos, Switzerland, that the rupee was relatively strong among EM currencies.

“India is affected by the same set of factors that other EMs face. The focus is bringing down inflation and the current account deficit, and keeping fiscal discipline within target,” he said.

Currency dealers expect the rupee to eventually scale back, even as some short-term losses are possible. \"Right now, the panic is high. Globally, everyone, including sovereign funds, are selling, and this bearish mode will not change immediately. Thankfully, RBI is clearly on the side of the rupee’s relatively strength and at least one per cent additional fall in China’s growth rate has already been factored in by the market,” said Satyajit Kanjilal, head of Forexserve.

The latter is advising importer clients to buy dollars at 67.3-67.4 and suggesting exporters sell at 68.2-68.3, indicating the rupee might not fall much from the present level.

The non-deliverable forwards markets, which now drives the onshore rupee market sentiment to a large extent, is also not expecting the rupee to fall substantially. The price quoted for a week is 68.11-68.16 a dollar and for a month, 68.4-68.45 for the rupee.