Indian Rupee: Why Politics Matters Less Than You Might Think

How Elliott waves anticipated a weaker U.S. dollar vs. Indian currency

by Bob Stokes
Updated: April 10, 2017

An April 5 Bloomberg headline reads: "Rupee Rally Nobody Saw Coming Sees Strategists Play Catch Up." Yet, at least one analyst did. These two charts tell the story -- see them for yourself.

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[Editor's Note: The text version of the story is below.]

A U.S. tourist who visited India some weeks ago was able to buy more Indian rupees using his dollars than U.S. vacationers traveling to India today.

Some observers attribute the rupee's "surprising" strength to politics.

An April 5 Bloomberg article titled "Rupee Rally Nobody Saw Coming Sees Strategists Play Catch Up," says:

Strategists are scrambling to raise their year-end forecasts for India’s rupee after the biggest quarterly gain in more than four years took them all by surprise.

The rupee jumped 2.8 percent in March to cap its best monthly gain in a year, thanks to a surge in foreign inflows following a win for Prime Minister Narendra Modi in key state elections. Its 4.7 percent advance last quarter is the largest since September 2012.    

But was the victory of Prime Minister Modi the real reason for the strengthening of the rupee?

Well, consider that Modi's landslide win in a key battleground state occurred on March 11.

But eight days earlier, our March 3 Asian-Pacific Financial Forecast showed this chart and said:

The [USD/INR] is declining in wave C of a three-wave decline from its January 2016 high. Wave B up ended at 68.97, exactly the same level as the start of wave A down, which supports a flat correction. Wave C should ultimately end below 65, which is near two levels that commonly mark the end of corrections: the 38.2% retracement of the prior impulsive advance; and the end of the previous fourth wave of lesser degree (wave 4). The sudden surge in the U.S. dollar after the Indian government imposed demonetization in November is increasingly looking like classic B-wave activity, which Elliott Wave Principle describes as a “narrow, emotional advance.”

In other words, the chart's Elliott wave price pattern anticipated a stronger rupee before Modi's election victory.

How has our prediction for the USD/INR played out?

Take a look at this April 10 chart:

As you can see, the Indian rupee per U.S. dollar is now trading below 65, just as the March Asian-Pacific Financial Forecast anticipated – because waves of market psychology manifest themselves in emerging markets as well, making them predictable.

At this juncture, our Asian-Pacific Financial Forecast is telling subscribers what to expect next.

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