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US dollar - Indian Rupee (USD/INR) Technical Update

By: Chintan Karnani, Insignia Consultants

 -- Published: Sunday, 11 May 2014 | Print  | Disqus 

The results of the elections will be announced next week. There can be huge volatility in the rupee (usd/inr). Unconfirmed reports suggest that the reserve bank of India (RBI) has been intervening to prevent the rupee from gaining below 60.00. The key reason for huge inflows and also for the continued rise in the Indian stock market is that a stable non congress government will be formed.

In case investor expectation does not happen then there can be weakness in the rupee and also a correction in the Indian stock markets. One needs to be prepared for the best and the worst for next week.

1) Usd/inr is trading below the 100 day moving average as well as the 200 day moving average. (100 day moving average: 61.3342, 200 day moving average: 61.9575,400 day moving average: 58.7464).

2) In case usd/inr does not break the 200 day moving average of 61.9575 before the close of this month, then the chances of a fall to the 400 day moving average of 58.7464  and 57.90 are very high.

3) The Reserve Bank of India (RBI) is very much prepared for huge outflows should there be a hung parliament. There will not be any 2013 style of weakness for the rupee. On the contrary if the expected NDA alliance gets a thumping majority then RBI will not be able to prevent sharp gains in the rupee.

4) The best way to prevent rupee gains (if the need arises) is to open up gold imports. Opening up gold imports will result in very huge US dollar outflows.

5) Fundamentally things have not changed for the Indian economy. Food price inflation is still a headache. Core sector growth and core sector employment is in no-mans land. Milk prices are being increased by Rs.1-Rs.2 per liter every three months on average. There are a lot of other examples of living essentials which keep on rising over ten percent every year and which if sustained will affect the masses. A continued rise in living essentials will result in a fall in Indian savings rate. The long term effects of a falling savings rate and increasing consumer debt can be devastating for the Indian economy.  The policy of the current UPA government is that relying on a very small percentage of population to achieve higher statistical growth. I just hope the next government makes policies which stabilizes prices of survival essentials and that a large section of the population participates in domestic consumption lead growth.

6) Emerging market like India are preparing for higher interest rates in the USA around a years time from now. Taper by the Federal reserve has been more or less factored in by the markets. Uncertain circumstances leading to a huge emerging market outflows can never be judged. Central bankers like that of India and others still have fresh memories of the great 2013 outflows and the subsequent currency depreciation. Globally emerging markets are still not out the woods yet.


Chintan Karnani

Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Website,

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