The rupee has moved down from 42.4 to a dollar on 5 October 2008 to 73.8 to a dollar 10 years later. That is a decline of 2.8% a year on a compounded average growth rate (CAGR) basis. The relations between the RBI and government had started to sour some time ago, but it seems to have reached a breaking point in the last few months. There would have been many issues like RBIs circular on NPA recognition; PSU banks under Prompt Corrective Action; liquidity infusion in the banking system; lending support to MSME sectors etc. The government seems to be in a hurry in deciding these issues; with as much as accepting an RBI governor resignation as its fallout; and their intentions as of now, until we get clarity, should be seen with suspicion.
On the charts too one can observe that the recent moves since December has been towards the gap region that manages to hold back the decline. With the previous two attempts failing to penetrate the strong support region we can expect the upward momentum to sustain albeit in a mild manner. The domestic scenario remains muted as the General election impact remains at the forefront of all traders action this year. One should expect the rupee to continue to oscillate in a range of 73.50 to 69.50 over the next few months. We can note that the immediate resistance of 71.50 has been reached where the descending trendline resistance has arrested the rise. The constant shadows emerging at those levels indicate some supply coming in. However looking at Eurozone as well as the US economic situation the Dollar could now begin to influence the INR and this could lead to some weakening. From a immediate standpoint we can look to introduce a hedge against a weaker rupee as the resistances are about to be breached and this could spiral upwards towards the levels mentioned.