The US dollar appreciated this month to touch new high of 50.57 but could not sustain at higher levels as the Indian government fought tooth and neck to avoid huge depreciation in the Indian rupee, said the Commodities Research Report by Religare. The drop in inflationary figures this month has been a big supportive factor for INR as the cost of primary articles is reduced due to the fall in commodity prices.
A reduced Cash Reserve Ratio (CRR), a cut in the Repo rate, Statutory Liquidity Ratio (SLR), increasing the Foreign Direct Investment (FDI) cap to 49 percent, issuance of bonds by the Reserve Bank Of India (RBI) and also allowing ready forward transactions in oil bonds, which could enable oil companies to raise money at a cheaper rate, are some of the crucial steps taken by the government to increase liquidity into the system.
RBI also announced to provide foreign exchange liquidity to the overseas branches of local banks through forex swaps. However, the continued Foreign Institutional Investment (FII) selling in the Indian stock markets and huge bailout packages of $750 billion and $800 billion by the US government will definitely provide good support to USD in comparison to other currencies.
“Last month, we witnessed a healthy correction in USDINR, from the highs of 50.38 as it retraced by around 38.2 percent, of the rally that started from the level of 41.9 in August 2008. This drop in prices was a good opportunity to go long in USD, as the overall trend is positive and it is trading well above its 50 and 200 Day EMA,” the report stated.