Indian Rupee Hits an All Time Low 8/25/13

The Indian Rupee hits its all time low last week around Rs65.56 to 1USD and then settled in at Rs63.30. Just a few years back it was in the Rs 45-50 range. Being a technical analyst and not a fundamental trader, it is easy to say I do not care why; but that is hard to say in this instance. When I left India many, many years back to come to the US to do graduate studies in Engineering I remember the Indian Rupee being around Rs 7-8? What has happened since? How is it that we can run up massive debt in the US and still have the INR declining against our currency?

India has only about 7 months of federal deposits and that number is shrinking due to the huge demand for oil and gold, both of which require US Dollars to purchase.

The Indian psyche has always favored Gold as the best hedge against all disturbances. When things go south, Indians buy Gold to hedge. Then there is the wedding seasons and families having to buy Gold as part of what they give the newly weds for their protection. India also imports 80% of their oil. Not a good situation. Add to that the US starting to look at reducing easing and even raising interest rates down the road, and we have a major problem.  

India has to borrow and invest into its infrastructure, and resolve how to reduce its oil dependency with a strong energy policy from the Government - using nuclear power, and more fuel efficient automobiles. More borrowing has the likelihood of weakening the currency and that is the fear we are seeing. Borrowing to buy gold and oil will not solve any of the structural problems and help investment, unless the weakened Rupee makes goods cheaper for foreign investments. In a democracy with political parties each wanting political power, it is much more difficult to steer the ship in the right direction, getting a majority support. It would be much easier in a country like China where the party could decree it.
I am a strong supporter of democratic principles, and I hope the country’s leaders are able to sort this out, because India has a lot to offer the world.

This week I saw continued strengthening in Gold and commodities. Not a huge amount but enough to where I am in DBC now, a commodity fund. The Nasdaq 100 has still not broken down, while SPY is showing some weakness but still hanging in. Emerging markets have shown a weakness and bond funds continue to decline.

Where will we go from here? I will follow my charts for direction…