Indian Rupee Outlook Brighter Against the Pound

The British pound to Indian rupee exchange rate (GBP/INR) looks poised to go lower as India continues to outshine its emerging market peers.

The pound failed to rise versus the Indian Rupee on Monday despite the release of data in the morning showing a widening of the Indian trade deficit to 11.66bn in December from 9.78bn in November.

The widening of the trade gap was explained as resulting from a decline in commodity prices, a general fall in demand due to the global slow-down and a rise in gold imports due to increased demand because of the onset of the Indian marriage season.

In the financial year from April to December, cumulative exports had also shown to have fallen, according to a report from International Business Times: 

“Cumulative exports in the current fiscal year in the nine months from April to December was $196 billion, a fall of 18 percent from $239 billion worth of goods exported in the same period a year ago, a report from the Ministry of Commerce showed Monday.”

The decline was put down to a fall in orders from the U.S and Europe:

“Orders from the U.S. and Europe, India’s two largest customers have dried up,” S.C. Ralhan, president of the Federation of Indian Export Organisations, told IBNLive.

“The slowdown in China and depreciation of its currency has further hit exports," Ralhan said, adding that total merchandise exports could fall to about $250 billion in the fiscal year ending March 31.”

Resilient Rupee  

The rupee’s strength versus the pound, in the face of weak data, can be explained by the Indian currency’s strong underlying fundamentals.

India is one of the emerging market economies weathering the current commodity crisis the best.

This is because of the country’s diversified economy, which has a sizeable white-collar services sector.

Indeed, in the final quarter of 2015 India beat China as the fastest growing economy in the world, boasting a GDP growth rate of 7.0%

According to economists Siddhartha Sanyal and Rahul Bajoria at Barclays, the outlook looks positive:

"Despite the negative surprise on the trade deficit, we think India’s underlying external position remains strong.

"For the fiscal year to date (April-December), the trade deficit stands at USD99.2bn versus USD111.7bn in FY14-15. The improvement in the trade balance has been driven completely by the drop in oil prices, which has been somewhat offset by higher non-oil non gold imports, and weaker exports."

Although the currency depreciated versus the dollar, it was more or less unchanged against the pound, trading at 96.57 to the rupee at the time of writing.

GBP/INR Meets Key Trend-Line

The chart below shows the steep down-trend in GBP/INR, however, there may be a bounce soon as the pair has just reached support from a major multi-month trend-line at 96.00.

RSI is not yet oversold but MACD is looking like it may be about to cross its signal line giving a mildly bullish signal.

For the current bearish trend to continue lower the exchange rate has to break below the major trend-line.

As such, a clear and definitive break below the 96.00 line - confirmed by a move below 94.00 - would probably lead to a strong move down to key lows at 90.60.