Daily Rupee call: Be cautiously bullish on INR

Akhil Nallamuthu BL Research Bureau | Updated on August 31, 2020 Published on August 31, 2020

FPIs pumping in more funds can put consistent upward pressure on rupee

The rupee (INR) posted a considerable gain of 1.9 per cent versus the dollar (USD) last week at it concluded the week at 73.4 against the previous week’s close of 74.85. On Friday, it marked an intraday high of 73.28 before giving up some gains.

The local currency has breached the key resistance at 74. Today, it has opened with a gap-up at 73.23, a fresh high in over five months. If the rupee gains further, the nearest hurdles it can face are at 73.15 and 73. On the downside, there is a support band between 73.4 and 73.5. Below that, the support is at 73.73.

One of the key factors that have been contributing to the rupee appreciation is the fund flow by the foreign portfolio investors (FPI). For the current month, until Friday, the net inflow was ₹50,688 crore (equity and debt combined). Equity segment is the largest contributor as it attracted net inflow of ₹46,602 crore. Going ahead, the FPIs are likely to pump in more money and this can put a consistent upward pressure on the Indian currency.

Foreign reserves

After witnessing a reduction in the total foreign reserves in the second week of August, it went up during the period between August 14 and 21 by $2.3 billion, according to the weekly statistical supplement released by the Reserve Bank of India (RBI) last Friday. The total FX stands at $537.5 billion as on August 21. Foreign currency assets (FCA), the largest component of the reserves, were up $2.6 billion to $494.2 billion from $491.6 billion during the corresponding period. But the value of gold holding dipped by $0.3 billion to $37.3 billion. Higher forex reserves are a good buffer for the exchange rate management, clamping down unexpected volatility given the current market circumstances.

Dollar index

The dollar index lost nearly 1 per cent last week as it ended at 92.37 against prior week’s close of 93.25. Today, it has opened marginally lower and is now testing the crucial support of 92.15. While 92 can be a support, a break below 92.15 can trigger a sharp sell-off and the index could easily move lower towards the subsequent support at 91.4. A weak dollar is good for the rupee.

Trade strategy

After opening higher, the rupee seems to be softening a bit. But considering the positive momentum, the rupee is less likely to retract below 73.5 should there be any correction. However, the market can be volatile ahead of the release of GDP growth and core sector output data later today. For intraday, traders can be cautiously bullish and buy rupee with a tight stop-loss if it moderates to the support band between 73.4 – 73.5.

Supports: 73.5 and 73.73

Resistances: 73.15 and 73

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Published on August 31, 2020
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