May 31 2018

Rupee at the mercy of Oil and RBI

With the US 10 year bond yields down towards 2.85-2.90% and a sharp fall in crude prices, the Indian Rupee has recovered from its multiple year lows – suitably assisted by the central bank’s intervention. RBI is expected to raise the cost of borrowing by at least 25 basis points in the June/August meeting due to the recent rise in inflationary pressures, courtesy rupee weakening and crude going higher. The twin deficits weigh heavy on the rupee and instead of taking lead; the central bank is probably taking cue from the market. Today’s Quarterly Gross Domestic Product (GDP) for Q4 year on year data is expected at 7.3% from the previous 7.2%. The Indian rupee is likely to continue its southward journey against the dollar if the oil prices heads higher.

Technically, on the daily chart, the 14-day Relative Strength Index (RSI) has started cooling off after reaching the overbought zone. The sell signal in Moving Average Convergence Divergence (MACD) continues. The pair sees 68.47 (previous dollar high) as a strong resistance followed by 68.86 (it’s all time high). 66.80 is the strong support but it has to breach 67.10 before that. The range expected for the pair is 66.80-68.47 for the short term.