Chart: Rupee at 4-month low of 53/dollar, will it touch 54?

The rupee dipped below 53 to the dollar to touch a near 4-month low on Wednesday, buoyed by sustained greenback demand from oil refiners.

The rupee is one of the weakest currencies in Asia because India is a net importer of goods and services and has a high current account deficit.Not only are India’s imports more than its exports, but the country’s forex cushion too is dwindling. According to S&P India has reserves to cover only six months of current account payments, down from over eight months in 2008 and 2009.

The local unit has been under strong pressure due to concerns about a slowing economy and drying inflows from foreign funds. The rupee was last changing hands at 52.95/96 to the dollar.

However, Agam Gupta of Standard Chartered told CNBC-TV18 that the central bank has been supplying dollars since the start this morning in an attempt to curb volatility in the rupee. After the greenback breached the 53 mark in afternoon it rebounded to 52.93 after the RBI stepped up supply at that level. For the week, Gupta expects the rupee to trade between 52.70-53.50, with support coming in around 52.75-52.80.

USD/INR faces strong resistance at 52.94-00, the 76.4 percent retracement of its December-February fall, traders said.

Traders said the near-term outlook for rupee remains bearish on the back of weak macro outlook, global concerns.

Citigroup Global Markets has warned of further downside risks to the economy, saying the problems faced by way of ballooning current account deficit and fiscal deficits are much more than they appear to be and rupee could depreciate to 54 to a US dollar over 6-12 months.

Stating that the deficits in CAD and fiscal situation are feeding on themselves, the report stated there is no simple solution as the vicious deficit mix is feeding on and across itself.

RBI has already injected around $20billion in the forex markets to prop up the rupee and a more agressive approach looks unlikely in the near-term.

Agencies