Summary: We expect Indian rupee (INR) to continue weaken against US Dollar due to continuing demand from importers and foreign fund withdrawal from Indian equity market. However, psychological resistance at level of 50 remains strong in the coming week.
Market Analysis: INR has been moving sidewise between 50 and 47 level since the last three months. Implied volatility on one-month dollar-rupee options was at around 15 percent this week, the lowest since September 2009. The gauge of fluctuations touched 33 percent on Oct. 27, the highest in at least nine years. Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of option prices. Ending this week, the most Asian currencies were down against the dollar as investors remain risk averse amid the deteriorating global economic situation. The JPMorgan Asia Dollar Index, which tracks 10 Asian currencies, fell for a fifth week, the longest run of losses since September. INR may touch 50 if weakness persists in equities when Asian markets reopen in the middle of next week after Chinese New Year.
