India's rupee rose, halting a two-day loss, after the current-account deficit widened by less than economists predicted, helping offset concern that a U.S. government shutdown will damp capital inflows.
The shortfall in the broadest measure of trade was $21.8 billion in the quarter ended June compared with $18.1 billion in the previous three months, the Reserve Bank of India said in a statement in Mumbai yesterday after markets closed. The median of 26 estimates in a Bloomberg News survey was for a $23 billion gap. The U.S. began its first shutdown in 17 years today amid a deadlock in Congress over government spending plans and President Barack Obama's health-care law.
“The current-account deficit will continue to show improvement and this leads us to believe that significant depreciation bias for the rupee is over for now,” Indranil Pan, an economist at Kotak Mahindra Bank Ltd. in Mumbai, wrote in a research report yesterday. Risks to the view include worsening global risk sentiment due to the Federal Reserve's tapering and the impact of the U.S. debt-ceiling impasse, he wrote.
Eoin Treacy's view The Rupee has been making headlines for
all the wrong reasons this year as its plunge challenged even the Yen's decline
for speed and size. However, with a new aggressive central bank governor, intent
on tackling the country's debilitating inflation problems, the currency has
The Rupee accelerated to an important low near INR69 a month ago and has since unwound more than half its short-term oversold condition relative to the 200-day MA. A sustained move above INR65 would now be required to question potential for additional Rupee strength.
Just as the weakness of the currency weighed on the stock market, its strength saw Indian equities surge from 12-month lows to challenge the all-time peak below 6500. The Index unwound at least part of its short-term overbought condition over the last couple of weeks and has now returned to the first area of potential support.
The Bombay Banks Index posted an upside key day reversal today, lending further credence to the view that the market has found at least a near-term low. Upside follow through tomorrow would help confirm that view.