INR - Up or Down from here??
I have tried to put my views on Indian Rupee on two occasions before this one. For reference,I am putting the links to those discussions below along with the dates.
INR headed to 50 - 25th Jan 2011
USD-INR Technical Perspective - 12th October 2011
I will use the second of these discussions as my starting point here.
For those who had tightened the belt, the rupee depreciation spree was not a surprise.We have not reached orbit yet, we have only taken off.
Now whether this take off has enough to propel it to orbit or whether we are heading back to the ten year range is the moot question. Well I do not have the answer, but maybe we can put the probable drivers of the movement in future and try and make an educated guess.
I will finish off first with my sense of the chartical position right now. What has essentially happened is that INR has broken into a new life time high by crossing the previous high of 52.18 which was set in March 2009. It crossed it with a lot of vigour. Having set quite a few heart beats racing, interventions did come in the form of actual dollar selling by RBI and severe restrictions on market participants (desperate measures, I thought).So broadly what is happening right now is that INR is taking a breather.
Having made a new life time high, it is basically testing the previous high (this is classical pattern for charts making new highs, particularly life time highs) and as of now has not broken it. As long INR does not start trading below 52 and sustain there, I think its fair to assume that this is a breather and we are getting set for the next round of depreciation after some time.
But how do we decide that it is a breather and that INR will not relapse back to the previous 10 year range.As I said before I do not have an answer for that, but I will put up some drivers for the INR which can drive it below 52 and others which can drive further above 52.
DRIVERS BELOW 52:
- FIIs come in hordes into the stock market, which will probably require global situation to improve.
- Gold imports drop off dramatically (that is responsible for a big chunk of the current account deficit). Possible with the high prices of gold. How about gold exports?? I suspect that may happen if gold prices start dropping alarmingly in INR terms.
- Deluge of money comes in response to the hike in interest rates on foreign currency deposits.
- Crude oil cools off dramatically.
- Finally, Government does some sensible work.
DRIVERS ABOVE 52:
- FIIs pull out money big time. They have hardly sold in the Indian markets as of now.
- Crude oil marches upwards even further.
- Gold imports keep coming.
- Exports crash. First signs were visible last month and lets wait for the follow-up.
- Close to 80 bn USD of short term up for rollover in the next one year.Maybe 15-20 bn USD may not get refinanced.
- Government continues with the screw-up job.
What RBI has done off late is essentially a time-buying manoeuvre. That is not going to solve the basic problem. And it hopes that within whatever time it has bought with these moves, either situation improves globally or at least government starts the process of clearing up the mess.
There are quite a few parameters which can have a dramatic impact on the way the INR moves going ahead. And most of them are inter-connected as well.
So its a tough call.
With a gun on my head, I will put the odds in favour of INR depreciating further in 2012.
(As always, let me make it clear that I am no currency expert. Take these to be the opinions of an amateur currency analyst!!)
I have tried to put my views on Indian Rupee on two occasions before this one. For reference,I am putting the links to those discussions below along with the dates.
INR headed to 50 - 25th Jan 2011
USD-INR Technical Perspective - 12th October 2011
I will use the second of these discussions as my starting point here.
For those who had tightened the belt, the rupee depreciation spree was not a surprise.We have not reached orbit yet, we have only taken off.
Now whether this take off has enough to propel it to orbit or whether we are heading back to the ten year range is the moot question. Well I do not have the answer, but maybe we can put the probable drivers of the movement in future and try and make an educated guess.
I will finish off first with my sense of the chartical position right now. What has essentially happened is that INR has broken into a new life time high by crossing the previous high of 52.18 which was set in March 2009. It crossed it with a lot of vigour. Having set quite a few heart beats racing, interventions did come in the form of actual dollar selling by RBI and severe restrictions on market participants (desperate measures, I thought).So broadly what is happening right now is that INR is taking a breather.
Having made a new life time high, it is basically testing the previous high (this is classical pattern for charts making new highs, particularly life time highs) and as of now has not broken it. As long INR does not start trading below 52 and sustain there, I think its fair to assume that this is a breather and we are getting set for the next round of depreciation after some time.
But how do we decide that it is a breather and that INR will not relapse back to the previous 10 year range.As I said before I do not have an answer for that, but I will put up some drivers for the INR which can drive it below 52 and others which can drive further above 52.
DRIVERS BELOW 52:
- FIIs come in hordes into the stock market, which will probably require global situation to improve.
- Gold imports drop off dramatically (that is responsible for a big chunk of the current account deficit). Possible with the high prices of gold. How about gold exports?? I suspect that may happen if gold prices start dropping alarmingly in INR terms.
- Deluge of money comes in response to the hike in interest rates on foreign currency deposits.
- Crude oil cools off dramatically.
- Finally, Government does some sensible work.
DRIVERS ABOVE 52:
- FIIs pull out money big time. They have hardly sold in the Indian markets as of now.
- Crude oil marches upwards even further.
- Gold imports keep coming.
- Exports crash. First signs were visible last month and lets wait for the follow-up.
- Close to 80 bn USD of short term up for rollover in the next one year.Maybe 15-20 bn USD may not get refinanced.
- Government continues with the screw-up job.
What RBI has done off late is essentially a time-buying manoeuvre. That is not going to solve the basic problem. And it hopes that within whatever time it has bought with these moves, either situation improves globally or at least government starts the process of clearing up the mess.
There are quite a few parameters which can have a dramatic impact on the way the INR moves going ahead. And most of them are inter-connected as well.
So its a tough call.
With a gun on my head, I will put the odds in favour of INR depreciating further in 2012.
(As always, let me make it clear that I am no currency expert. Take these to be the opinions of an amateur currency analyst!!)
1 comment:
If Reserve Bank of India has learnt any lessons from the Asian crises, then the Central Banker will decide to take Rupee-Dollar trade take its own course. The least it intervens the better it is for the long term prospects of foreign reserves to sum up.
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