USD/INR outlook: Rupee bull run gaining steam!

All cues in favour of Rupee, only RBI against!

Rupee recovery from 62.45 into 61.70-61.85 despite strong $ against global currencies and sustained $ purchases by RBI is sign of extended bullish momentum into 61.20-61.35 and beyond into 59.50-60.50. The stake-holders got jitters post the sharp weakness from 61.30 into set 62.20-62.45 support zone (12M $ resistance zone of 66.85-67.00), but $ couldn't hold its strength there on strong FII supplies and lead-lag play in the forward market absorbing elevated FX premium. Over all, it is back-and-forth play at set focus zone of 61.20/61.35-62.35/62.50 (12M $ at 65.50/65.65-66.85/67.00). What next?

I am unable to see one reason that could go against Rupee. India fundamentals stay firm retaining FII appetite, with no worries on dilution or exit. Interest rate play will continue to remain in favour despite 50-75 bps rate-cut in pipe-line. There is no major risk on Rupee despite squeeze in India-US yield differential on sustainable easing on India inflation. Importers are in no hurry even to cover ultra near-term liabilities seeing opportunity loss every time. All taken, RBI is the only risk factor against Rupee with the objective to cushion excessive Rupee appreciation. Till the going is good, RBI is ok with baby-steps Rupee appreciation, and the good is expected to stay for long!

The strategic play is now shifted to 60.95/61.20-61.95/62.20 with bias into 61.00 and beyond; hedging strategy, if at all importers wish to cover, could be based on short-term stability at 59.50-62.50. Believe exporters are in comfort post hedge of receivables while 12M at 68.00-68.50 and now at 66.85-67.00; those who have not, can track 12M $ at 64.00/64.50-66.35/66.85 for hedge strategy.

EUR/INR relief from 68.00-68.25 lost steam at set end of correction zone at 71.00-71.25; U-turn from there has hit the 1st objective at 69.00-69.25. The tone remains weak at 68.00/68.25-69.75/70.00 with short term objective at 65.00. Exporters were cautioned not to stay open, and EUR/INR is already down from 80.00 since mid December 2014, while it is manna from the heaven for importers and carry-trade play.

Rupee is the strongest of all and there are no signs ahead to give up this position in a hurry; till then, ride the Rupee bull wave with risk only beyond 62.50 against the USD and 71.25 against the Euro.

Moses Harding