DXY at 85.25-86.25 seen as best case on rally from below 80; beyond here will be pain for many and cheer for some! Tracking the dollar strength, Euro is down from 1.40 to 1.27, JPY from 101 to 109 with similar impact on most of EM currencies. Rupee has stood out with marginal decline from 60.20 to 61.70. RBI is playing both sides to balance expectations of exporters/FC investors (with $ bids above 60.20) and importers/FC borrowers (with $ supply below 61.70). Will RBI retain this "peg" at 60.20-61.70 or prefer a "floating peg" in line with REER?
What next? It is high probability that 60-63 is the range for USD/INR till March 2015. The doubt is on the direction of NT stability either at 60.00-61.50 or 61.50-63.00! While domestic (and emerging external) cues are mostly priced-in, break-out direction of DXY at 85.25-86.25 will set up the bias; extended $ rally beyond 86.25 puts Rupee at risk of shift into 61.50-63.00 range while sharp correction below 85.25 (with extended pause) is relief for Rupee at 60.00/60.50-61.50! It is all-win stance if Rupee stay adjusted to time-decay with baby-steps move within 60-62/63.
Moses Harding
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