Rupee fades amid US policies, outlook weak

After hitting a triple top at 68.75-68.85/USD levels during January, February and November 2018, Indian Rupee witnessed a sharp appreciation against the US Dollar, all thanks to the macroeconomic progression. Indian Rupee appreciated nearly 8 per cent to 63.25/USD on January 8, 2018 post which the rupee has seen marginal weakness and going forward, we may see some more depreciation at the rupee’s end.

The most talked about headwind for the Indian Rupee are the protectionist policies of US President Donald Trump, followed by the trade war cues. Though rupee might see some relaxation as India has sought some tariff waiver for metal exports. The second headwind was the recent interest rate hike by the US Federal Reserves, a further weakening of the rupee is expected amid frequent rate hikes cued until the end of 2019.

On the domestic front, the unearthing of frauds in the PSU Banks, huge twin deficits of fiscal and current account would stress the rupee further notwithstanding the rising output and the relatively reducing inflation.

Technically, USD bounced back after hitting a low of 63.25 and formed a kind of Inverse Head & Shoulders or more prominently a downward sloping trendline breakout at 65 levels. USD/INR for now stands at 65.17. The next immediate resistances are at 65.25 and 65.31 and USD/INR is on the verge of breaching those after a significant trendline breakout. In case 65.30 is hit on a closing basis, we may see USD/INR hitting 65.55 and 65.90 soon.

On the medium term, if the US President's dominance continues and difficulties in the domestic banking system persists, we may also see USD/INR hitting 66.6 to 67 levels. On the downside, 64.72-64.62 would act as a support, followed by 65.56-65.38. Nevertheless, the companies generating higher revenue in dollar terms would benefit in the near term.