For the first time after a brief visit in 2008, the dollar-rupee rate has crossed Rs. 51.

All these currency movements are nearly vertical, it seems.

Inspired by Kaushik’s post at Niti, I plot the USD INR with it’s 200 day moving average, and the distance in %. Kaushik is right in that the current deviation from the long term trend isn’t as extreme as 2008.

The rupee is trading at Rs. 48 to the dollar today, in the futures market. The RBI ref rate was at 47.1, and we are close to 2 year highs.

The longer term chart shows that the 48 level was last crossed from below in October 2008, just as the Lehman crisis unfolded (it took the dollar to 52)

And prior to that in the 2001-2002 time frames (9/11 and Enron and the subsequent runs to safety).

The exchange rate has dropped from 44 to 48 – about 10% – in a very short time. Given that we are a net importer, and oil prices remain steady (Brent) at above $110, the rupee drop stokes inflation higher as we will pay more rupees for the same oil.

In the short term, it means that interest rates will keep going up. There is no appetite in the RBI to reduce forex reserves and sell those dollars that it has, and the net outflow of dollars is likely to continue given the weak situation in Europe and the US. India as a policy maker inspires very little confidence abroad, as politicians fumble through fiscal issues and corruption continues to make headlines.

Is this good for the IT and ITES companies? In the short term, yes. But in the longer term, you have to offset that with the weakness in the developed markets, where new contracts may not be quite as forthcoming. Indeed, recessionary fears have caused a big slump in hiring in August.

Also, given that the last three big rises were before or during crisis situations, we can’t rule out a new crisis unravelling in the next few months. I’ll keep a close eye.

We’ll soon be able to trade the Euro, the Japanese Yen and the UK Pound (see Zip file) with the Indian Rupee. The contract specs are – 1000 of the foreign currency (100,000 in case of the JPY) on each contract. Trading between 9 AM and 5 PM, settlement on the last working day of the month. There are specific margin calculations per contract for spread, initial and extreme loss margins, and there are position limits (individual level of 6% of total OI per client).

Apart from this, SEBI has curtailed margins for calendar spreads (buying one tenure future and shorting another) for all contracts including the current USD-INR contract.

This is useful and interesting, except for one small, slight problem: I don’t know of many brokers who provide currency trading for online traders! Do you? This is when one would love a NEAT terminal, but no one gets it apart from the broker/members.

This post is written by Deepak Shenoy, at Capital Mind.