The rupee (INR) gained sharply last week, appreciating from 72.02 to 70.94 against the dollar (USD). The Indian currency has been one of the top performing currencies so far this year, gaining 0.62 per cent. Despite the dollar rally last week, the one-year forward spread of the USDINR currency pair seems to have stabilised around 300 points, aiding the rupee.
On Friday, the rupee closed above the key resistance of 71, and further appreciation from current levels is highly likely. But 70.5 can act as a significant hurdle; the daily chart shows that the USDINR exchange rate has been fluctuating between 70.5 and 72.25 since September last year. Hence, at 70.5, the domestic currency might witness profit-booking. On the downside, key supports are at 71 and 71.2.
Foreign reserves
India's foreign reserves, maintaining their uptrend, have gone up according to data released by the Reserve Bank of India. The weekly statistical supplement released by the RBI on Friday showed that the total foreign reserves have gone up by $3.69 billion over the previous week. The total reserves increased to a new all-time high of $461.15 billion from $457.47 billion. Foreign Currency Assets (FCA), the largest component of the reserves, went up by a little over $3 billion to $427.95 billion from $424.94 in the same period. Also, the value of gold holdings saw an increase to $28.06 billion from $27.39 billion.
The dollar index rallied last week and broke above the resistance at 97. Currently trading at 97.35, it faces a strong resistance at 97.75, beyond which 98 can act as a hurdle. Alternatively, if the index falls, it will have a support band between 97 and 97.2.
The rupee is on a strong short-term uptrend, the sustainability of the same will be tested when the exchange rate reaches 70.5, as it is a substantial resistance. Thus, from the trading perspective, it is recommended that participants initiate longs with a tight stop-loss and exit when the rupee rallies to 70.5.
Supports: 71 and 71.2
Resistances: 70.75 and 70.5