Mumbai: The Indian rupee’s current rally may be coming to a close with the central bank keen to prevent it from rising further, but on technical charts the longer-term outlook remains bullish, Standard Chartered Bank said in a note.
The partially-convertible rupee has gained 9% so far in 2007. It touched a nine-year high of 40.28 per dollar on May 28, and is Asia’s strongest currency against the dollar this year.
According to a JP Morgan real effective exchange rate index, the rupee is 16.9% overvalued. But Standard Chartered said suspected intervention by the Reserve Bank of India (RBI) to curb its recent gains meant the advance was over.
“The new line in the sand appears to be around 18.6% overvalued,” Standard Chartered said.
The rupee was quoted at 40.63 on Thursday.Standard Chartered forecast it would weaken to 42.50 per dollar by the end of December, compared with a previous forecast of 42.20.
Analysts say the RBI has allowed the rupee to rise to tame inflation, which hit a two-year high of 6.7% early this year. But inflation has now slowed and traders say the central bank seems to be back, buying dollars heavily around 40.50.
On the technical charts, Standard Chartered said the rupee’s short-term outlook was mixed, with signs it may remain range bound.
But the weekly chart was dollar bearish overall, even though the weekly Relative Strength Index was looking oversold. After breaking 42.30, dollar/rupee potentially targeted 38.28 over the long term, a level unseen since late 1997.
“Any upside (dollar/rupee) corrections are likely to be limited by the 41.53-41.79 area,” it said.