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.
Some say the next would be 70, while others say 75. But I dont 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, but the 70 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% 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. Reuters