What next for a falling Rupee

Dark clouds loom over the Indian economy with the rupee hitting an all-time low of 62.03 (intraday) on Friday. The sharp sell-off in themarkets reflected the sentiment.

Belated measures by the government and the Reserve Bank of India (RBI) have been largely ineffective in stemming the fall of the Rupee. The overall trend is expected to remain bearish over the medium to long term.

The rupee which was trading sideways in the range of 59-61.5 over the last month or so has broken down from the range on renewed fears of QE tapering.

Tapering is a reality and may start sooner than expected given the series of positive economic data from the United States (US). Emerging markets, including India, continue to price it in, resulting in reduced capital inflows, steadily weakening currencies and rising yield curves.

Domestic equities showed the strain as the benchmark index Nifty plunged to test crucial support levels of 5,500.

TOO LITTLE, TOO LATE

The measures undertaken by the RBI to check speculation and outflows have seen little effect.

The rupee was trading at 60.7 against the US dollar before the first set of measures was announced in July and is now trading at 61.65 at last close.

More such measures are supposed to be on the anvil and perhaps they can provide some relief to the Rupee in the short term.

Technically, the rupee has an important support around 61-62 where it has completed a projected bearish pattern target.

Hopes of some brief pullback remain high as long as it trades below it.

A sustained close below 62 will potentially accelerate the fall in the currency.