The rupee has fallen so far so fast that not even technical analysts can divine the currency's future.
The chartists, as these analysts are also known, are struggling to
make sense of a currency that is now firmly in territory that is
uncharted.
Strategists said that technical factors did not count for much in
crisis situations in which investors were fleeing markets and the fact
that the rupee was at record low levels compounded the problem because
making comparisons with past price patterns was impossible.
The rupee has consistently fallen below all reasonable technical
targets since breaking its then record low of 57.32 to the dollar on
June 10. The rupee is now at 66.55 and heading towards 70.00.
"Some say the next would be 70, while others say 75. But I don't see
any specific target. It is almost impossible to set a technical target
as the rupee hits all-time lows every day," said a non-deliverable
forward (NDF) trader at a European bank in Singapore.
Saktiandi Supaat, head of FX research at Maybank in Singapore agreed.
"It looks like the rupee is in a new uncharted territory. A next key
level is 70.00, but the 70.00 is just a psychological level (not a
technical one)."
With technical analysis not offering much guidance, investors are
looking even more closely at forwards and futures markets, which can be
an excellent gauge of price expectations.
These markets suggest the rupee - despite being down 18 percent
against the dollar this year and recently hitting a record low of 68.85 -
could fall further yet.
There are both onshore forwards and futures markets and offshore NDF
markets for the rupee, with trade in the latter taking place in
Singapore, Hong Kong, New York and London, unfettered by Indian central
bank regulations that control the onshore market.
Rates in the onshore futures market have the rupee at 67.06 in
one-month, versus a spot rate of 66.55. Three-month rates are quoted at
68.40, six-month at 69.24 and 12-month at 70.80.
Quotes in the offshore NDF market are also bearish. One-month rupee
NDFs are trading at 67.49, while the three-month is at 68.74, the
six-month at 70.05 and the 12-month at 72.34.
The difference between the onshore and offshore quotes reflects the different players that are active in each market.
While traditionally the NDF market has been the home of offshore
speculators - and still is given the pressure the rupee is under - it is
also home to genuine hedging now that so many restrictions have been
imposed onshore.
Indian regulators have taken steps to reduce arbitrage opportunities
between the onshore and offshore markets because they believe that
speculation in these markets puts pressure on the spot rate.
The NDF market has influenced India's foreign exchange market but
more so has influenced volatility, outgoing Reserve Bank of India
governor Duvvuri Subbarao said after his monetary policy review on July
30. "It will be a better world for us if there is no NDF market, but we
cannot wish it away."
Onshore spot traders in Mumbai agree, saying that the severe bearish
bets against the rupee in the offshore markets had a negative impact on
the rupee's opening trades on days when other Asian currencies were
relatively stable.
"We are seeing the NDF markets having a big impact on the rupee's
fortunes during the current bout of depreciation. It is complicating the
RBI's rupee defence as it does not have any regulatory purview over the
market," said Subramanian Sharma, director at Greenback Forex.
The RBI has tried to make speculating on the rupee expensive. Among a
wide range of measures the most acute has been to raise short-term
interest rates, which have spiked by almost 300 basis points, roiling
bond markets and raising the cost of funds for banks and companies
looking to short the rupee - as well as inducing a rupee credit squeeze.
These measures have certainly reduced currency futures volumes, which
traders estimate have plummeted to an average $2-$3 billion a day from
as much as $7 billion before the measures were put in place.
nitesh kumar
pgdm 1 st
India
is liaising with other emerging-economy countries on a plan to
co-ordinate intervention in offshore currency markets blamed for
fuelling a currency rout over the past three months, a senior Indian
finance ministry official said today. 
