RBI introduced a beyond consensus rate cut of 35 bps but it did not bring the rupee depreciation to a halt. The measures taken by RBI to jumpstart the economy failed as the rupee today weakened past the 72 mark against the US dollar, clocking a fresh low of this year. Foreign investors sold over ₹900 crore (net) of Indian equities on Thursday. Over the past two months, foreign investors sold Indian equities worth over $3 billion after the government increased surcharge on FPIs in the July Budget. With continued global slowdown and absence of any positive triggers the INR continues to fuel more upside and attract some steady weakening. The emerging-market turmoil continues to create more pressure on the INR reasserting its status as Asia’s weakest currency. And the outlook for the currency has turned more negative with government initiatives to fuel some recovery turning sour.
Higher timeframe charts are highlighting that the trends had been on a decline until they encountered a strong support at the value area around 68.5 that we have been highlighting in our previous issues. After spending a while around that zone the USDINR quickly rebounded and has now risen by more than 3 Rs from that level. The current rise continues to attract more buying interest and the display of fresh momentum shows that we could see further weakening in the coming days. The onset of fresh upward momentum highlights possibility of more weakening towards next set of resistances around 73.25 in the coming days. The last few weeks the weakening has held on to higher levels that clearly suggests that bullish bias in play.
Judging from the negative impact on the INR from the RBI rate cut, we can only conclude that the cut was already largely priced in. While the government has once again taken an initiative to withdraw the FPI surcharge declared in the Budget. While hopes of some relief in INR is expected the headwinds surrounding this continues to emerge from the US China trade war that does not seem to die down at the moment. The state of affairs continues to be a little jittery at the moment and one should look to hedge against a weaker INR in the coming weeks. The immediate range which one can expect is around 71 to 73.25 for the coming few weeks. With worsening of relations between global super powers we could now enter a period of sustained weakening towards the end of 2019.
This is the line of approach we have been maintaining in our engagement with the markets be it Currency or Equities. The key is on how we develop a perspective and engage with the market. We have a NeoTrader approach that has been quite helpful in the current market conditions to give us some cues on the direction of the market. Volatility shall only step up but then if you are empowered to see through the chaos you can hold on to your analysis.