The Indian rupee lost 50 paise to the pound on Tuesday after sterling rallied following a rise in the stay vote in the latest Brexit poll
The GBP/INR pair rose 50 paise to 95.29 on Tuesday April 19 after speculators began to see a lower probability that the British people will vote to leave the EU.
Brexit polls showed the pro-EU camp with a clear four point lead for the first time in weeks.
The cause may have been a recent report from the Treasury showing how it expected the country would lose out financially if Britain were to leave the union.
Commenary highlighting the risks to the economy and expecially the City of London as a leading financial centre also may have hit confidence in the Brexit vote.
Pound to rupee meets 50-month moving average
The pound to Indian rupee has reached the 50-month moving average at 94.72, a level which is likely to prevent further declines temporarily.
Traders pay close attention to moving averages, in particular the 50 and 200 as they are levels on the chart where the exchange rate almost always pauses, bounces or reverses.
Another major average, the 200-week, is not much higher at 95.20, although it has probably been broken now and may be acting more as a ceiling preventing further gains than as a support preventing more downside.
The pair has been in a medium-term down-trend since peaking at 105.56 rupees to the pound in August 2015, as the outlook for the Indian economy has continued improving whilst the pound has been stung by EU referendum fears.
The current down-trend is likely to continue lower as long as it does not start to reverse at the current level of the 50-month MA.
The down-trend has already gained a good boost from the break below the major trend-line which was situated at 95.28.
Although the pair is rising now, it may just be returning to retest the underside of the trend-line before pushing off again and going lower.
Ultimately we see a break below the current 93.35 lows as opening the way and confirming a continuation down to the next target at 92.55, where the S2 monthly pivot is situated and likely to prevent further sliding.
The rupee is currently gaining on investor flows seeking to buy Indian shares as they continue to rally higher.
“The rupee has jumped 2.4% this month to head for its biggest gain since March 2014, after weakening last month to the brink of a record low. Foreign funds have pumped a net $2.4 billion into Indian stocks in March, after two months of outflow,” according to the Economic Times (ET).
The trend for emerging market investments appears to be returning after being somewhat subdued at the start of the year amidst fears about China’s slow-down and yuan depreciation.
In a recent note by UniCredit’s lead economist, Erik Nielsen, for example, he shows that for the last 4-weeks flows into EM portfolios have gone back up to 2011 levels. This combined with the IMF’s view that emerging markets are now stabilizing, and the recent recovery in commodities appears to be driving the renewed interest in Indian and other EM assets. This in turn has improved the outlook for the rupee.
In the short-term there is some risk of some downside volatility, according to the ET, however, as a gigantic dollar-rupee swap which the Bank of India conducted with Indian Banks, in order to raise its foreign currency reserves, matures.
Analysts at Citibank are calling the rupee a buy and hold as long as prime minister Modi makes good on his promises to narrow the fiscal deficit to a 9-year low, which will attract more foreign investment.
The rupee "can be an outperformer in Asia should the government execute the budget plans," said Bhanu Vohra, head of FX for South East Asia at the US Bank.