Rupee is set for pullback after August surge, technicals suggest

India’s rupee looks set to weaken after its rally in August pushed it to the top of the emerging Asian currency charts, according to technical indicators. 

The dollar-rupee’s relative strength index dropped to 22.8 last week, the lowest level in 11 months, well below the level of 30 that typically indicates an asset is set to change direction. When the reading slipped to 19.9 last September, the rupee declined about 0.6% over the following month.

The rupee powered ahead in August, gaining almost 2%, as a flurry of initial public offerings lured inflows, and speculation grew that the central bank was relaxing its control over the currency. The currency was also boosted as the dollar slipped after Federal Reserve Chair Jerome Powell sounded more dovish than expected at his Jackson Hole speech.

 

Looking ahead though, the Reserve Bank of India may soon decide the rupee has risen far enough given that a stronger currency can reduce export competitiveness, just as the economy recovers from the impact of the coronavirus. 

“On the back of Powell-led euphoria and backed by some IPO and bond-related inflows, the rupee has rallied,” said Samir Lodha, chief executive officer at QuantArt Market Solutions, a Mumbai-based advisory firm. “There was a good move, enough of a move and a good opportunity to buy the dollar as well. A little bit of stress from inflation, taper-pace talk, rate hikes, growth concerns, and the pair will be back to 74-75 levels.”

The rupee closed at 73.1050 per dollar on Monday.