INR Weekly

Fundamental Analysis
Dollar registered a smart recovery this week after three consecutive weeks fall amid short covering as well as buyingof dollars by oil marketing companies. The USDINR which touched 45.82 levels the previous week jumped by almosta full rupee as it made a high of 46.80 levels. Although a relief rally was expected in the pair, the fact that dollar index did not support the rise of USDINR was one the key features of the week. Better than expected American results did not act as a deterrent for the equity markets to fall as correction was witnessed in major equity indices, which also helped the pair to rise.
Dollar Index
The dollar index continued to show weakness,
touched a 14 month low at 75.05. Although 75.00
levels seem to be a crucial psychological support,
a breach of this level would lead to further
weakness and is a major concern for other
currencies which are appreciating. Uneasiness
was seen among euro zone countries, as ECB
officials claimed that weaker dollar is bound to
affect exports.
Pound sterling and Euro were the major gainers
in the dollar index, where as the Japanese yen
rise is halted.
Higher Crude Oil Prices – A Concern for Central Bankers
Crude oil prices breached the $80 mark this
week leading to concerns of higher inflation
for economies worldwide. A combination of
weakness in dollar along with lower
inventories was a critical reason for rise of
crude oil. However the percentage rise of
Crude Oil was more in US Dollar rather than
other currencies. In Euro terms Crude oil was
quoting at 53 Euros which was near to its
august highs while in Rupee Terms crude
was at Rs.3711/barrel which was marginally
up from August high of Rs.3700/barrel. Thus
in actual terms higher crude prices may not
affect other economies so soon because the
fair price still remains at August levels.
However Talking specifically about the Indian
economy the food based inflation is on rise
and if crude oil continues to rise at this pace the fuel inflation will also start its upward trend which is expected tocreate further problems for the economy. Bond yieldshave also risen with 10 year benchmark yield touching 7.47%in anticipation of interest rate rise in near future.


Credit Growth – A Concern For Indian economy
In another development Low demand for loans pushed credit growth to a 12-year low of 10.75% during the year up to October 9. The previous low of 9.78 % was during the fortnight ended November 11, 1997. According to the latest data released by the Reserve Bank of India (RBI), for the fortnight ended October 9, 2009, bank credit grew Rs 17,160 crore. In contrast, after the credit crisis intensified in September last year, banks lent Rs 64,937 crore during the fortnight ended October 9, 2008. Lower demand of funds from the credit sector was one of the main reasons forthe fall of credit demand
Conclusion
This week it will be the credit policy of RBI which will be the main focus of currency traders. Although we do not expect any change in REPO and Reverse REPO rates this time but the statement of RBI Governor will assume its significance. Looking at RBI’s governor statement a few weeks back that India might have to take lead over developing world in increasing interest rates we expect a hawkish statement from the governor. This might lead to Rupee Strengthening over the dollar in short term and might touch 47 levels in coming days. Apart from this a potential correction in Indian equity markets will lead to strengthening of the currency pair.
Technical Analysis Looking at USDINR spot charts, one can see the currency pair in a pullback mode with 46.81 levels acting at a crucial resistance. This levels is also 23.6% retracement of the fall from 49.20 to 45.82. The pair has been consolidating at those levels for 3-4 days now. A decisive breach of 46.81 will take pair towards 47.11 levels.