Rupee drops to Rs15.51 vs dirham

Persistent dollar demand from Indian importers and banks forced the Indian rupee to a fresh 11-month low, slumping to Rs15.51 against the UAE dirham on Thursday morning.

The new 11-month low came in despite the Indian government announcing one more hike in the import duty on gold, taking it from 6 per cent to a high 8 per cent with this increase.

While the increase in the gold price was done with the intention of reining in ballooning demand for the precious metal, with the ultimate objective of lowering India’s ballooning current account deficit, there seems to be no immediate impact on the direction of the beleaguered rupee, which has continued on its downward spiral.

In the immediate term, the rupee is expected to fall even further, with Indian currency specialist firm Way2Wealth suggesting that the rupee could fall to 57.25 against the US dollar, even below its all-time low of Rs57.13, hit almost a year ago on June 23, 2012. In UAE dirham terms, that will work out to Rs15.58, which is obviously lower than the all-time low of Rs15.55 against the UAE dirham, made last year.

“The pair [US dollar and the Indian rupee currency pair] zoomed after consolidating in its wave IV and it is expected to test the upper end of the parallel channel i.e. 57.25,” Way2Wealth says in its report this morning.

“The all-time high in June futures is 57.5250 which will act as a resistance, however, if that is taken off then we can see further buying till 58 levels. The support on the lower side is pegged around 56.70 levels,” it adds.

In a nutshell, the 58-level that the currency experts tout imply rupee could weaken to Rs15.79 against the UAE dirham, offering unprecedented rates to Indian expats on their money remittances.

However, the Reserve Bank of India is expected to soon intervene in the currency market to bring a halt to the decline in the country’s currency. Already, the government has announced a hike in gold imports duty with that objective in mind.

According to Indian government data, gold imports are one of the biggest contributors to the country’s current account deficit, which has been rising, prompting concerns among policymakers and which has led to a series of import duty hikes on gold to dampen its appetite among gold hungry Indians.

Data shows that India’s gold imports touched 162 tonnes in May, nearly twice the average level. India continues to demonstrate a continued appetite for gold. In the first quarter of 2013, total gold demand was 257 tonnes, up 27 per cent on the same quarter last year, according to World Gold Council statistics. Retail investment was up 52 per cent while jewellery was up 15 per cent on Q1 last year.