India’s Rupee Extends Drop From 7-Month High as Rally Overdone

India’s rupee extended its retreat from a seven-month high as a technical indicator suggested its recent rally had been excessive.

The rupee fell 0.4 percent to 61.22 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 60.6038 yesterday, the strongest level since Aug. 12. The currency surged 2 percent in the five days through March 10, pushing the dollar’s relative strength index below the 30 level that indicates a probable rebound in the greenback.

“There is some profit-booking after the rally,” said Vikas Babu, a trader at Andhra Bank in Mumbai. “An improvement in inflation has been factored in to a large extent.”

Consumer prices probably rose 8.30 percent in February from a year earlier, compared with 8.79 percent in January, according to the median of 45 estimates in a Bloomberg survey before data due today. Wholesale-price inflation slowed to 4.9 percent from 5.05 percent and industrial production fell 0.9 percent in January from a year earlier, separate surveys showed.

Investors should take advantage of an expected weakening of the rupee toward 61.73 per dollar to sell the greenback as the Indian currency will then strengthen toward 58.81, MacNeil Curry, a technical strategist at Bank of America Merrill Lynch in New York, wrote in a research note to clients yesterday.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, climbed 17 basis points, or 0.17 percentage point, to 8.42 percent, data compiled by Bloomberg show.

Three-month offshore non-deliverable forwards dropped 0.6 percent to 62.26 per dollar. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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