Rupee Falls From 8-Month High on Technicals, Intervention Risk

India’s rupee retreated from an eight-month high as a technical indicator suggested its recent rally had been excessive and on speculation the central bank will slow gains that may hurt exports.

The currency declined 0.5 percent to 60.1750 per dollar today in Mumbai, according to data compiled by Bloomberg. It touched 59.60 yesterday, the highest since July 30. The currency appreciated 3.2 percent this year through yesterday, pushing the dollar’s relative strength index below the 30 level that indicates a probable rebound in the greenback.

Reserve Bank of India Governor Raghuram Rajan said a rupee level of 55 per dollar today would be “too strong,” according to an interview with the Mint newspaper published today. It last touched that level in May 2013. Exports contracted in February for the first time since June. Investors are also looking ahead to U.S. payrolls data tomorrow to assess the outlook for the Federal Reserve’s paring of stimulus.

“The RBI comments indicate that they don’t mind intervening in the foreign-exchange market if the rupee appreciates further,” said Vikas Babu, a Mumbai-based currency trader at Andhra Bank. “There is some profit-booking in the rupee ahead of U.S. payrolls data, which is also weighing on the currency.”

Rajan didn’t give a specific range on the rupee, the Mint reported. A study by economists at the finance ministry has suggested a currency range of 60 to 62 against the dollar was “reasonable” after considering India’s inflation and export competitiveness, the report cited the governor as saying.

Technical Levels

“The currency has breached some key technical levels and strengthened quite rapidly, making it somewhat oversold situation,” Tsutomu Soma, manager of the fixed-income business unit at Rakuten Securities Inc. in Tokyo, said in a phone interview. “Therefore, a brief short-term position adjustment is quite likely although a long-term trend looks to be quite bullish for the rupee.”

The rupee posted its biggest quarterly advance since September 2012 in the three-month period ended March 31 on optimism a new government after this quarter’s elections will hasten economic recovery. Global funds have pumped $11.1 billion into Indian shares and bonds this year, the most among eight Asian markets tracked by Bloomberg.

“Foreign inflows are likely to pick up further as we approach the elections and it is unlikely that they will withdraw until the outcome is known,” said Ashtosh Raina, Mumbai-based head of foreign-exchange trading at HDFC Bank Ltd. in a phone interview. “The rupee’s movement ahead largely depends on election outcome and only a government that has pro-growth policies will help it appreciate further.”

Yield Advantage

India’s 10-year sovereign bond yield of 9.01 percent is the highest among investment-grade Asian economies, and compares with 2.80 percent for similar-maturity U.S. Treasuries.

“Real yields in India are trending higher compared with other emerging market economies,” Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore, said in a phone interview. “But, it doesn’t feel like it’s potentially a great risk-reward win right now when the governor is talking in those terms.”

U.S. companies probably created 200,000 jobs last month, versus 175,000 in February, according to the median estimate of economists surveyed by Bloomberg.

Three-month offshore non-deliverable forwards declined 0.8 percent to 61.32 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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