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The rupee (INR) has opened Thursday’s session with a gap-down against the dollar (USD). Consequently, the local currency has registered a fresh lifetime low of 76.81. On the downside, 77 can act as a support. A recovery from current level could be resisted at 76.5 and 76.3.
Yesterday, after opening on the front foot, the domestic unit was unable to capitalise on the positive momentum, and gave up its gains. After a gap-up open at 75.97, the local currency depreciated and closed at 76.44, after making an intra-day low of 76.48
Even as the rupee lost ground, fund flows were positive for the domestic unit as Foreign Portfolio Investments (FPI) were net buyers yesterday. On Wednesday, net FPI inflows stood at ₹1,358 crore (equity and debt combined).
Deficit narrows
Government data released on Wednesday showed that the trade deficit has narrowed in March 2020 to $9.76 billion compared to $11 billion in March 2019. On a sequential basis, there was not much variation, as the deficit was $9.85 billion in February 2020.
For the fiscal year 2019-20, the deficit shrank to $152.88 billion from the previous year’s $184 billion, as a drop in imports outpaced a drop in exports. While imports fell by 9.12 per cent for the year to $467.19 billion, exports fell by 4.78 per cent to $314.31 billion.
WPI Inflation eases
Like Consumer Price Index (CPI) based inflation, the Wholesale Price index (WPI) based inflation, too, dropped last month. The annual rate of inflation stood at 1 per cent in March 2020, compared to 3.1 per cent in March 2019. It also declined compared to the preceding month’s 2.26 per cent. A drop in inflation is good for the Indian currency and overall market sentiment, especially since the Reserve Bank of India has been reducing the repo rate to support the economic growth.
Dollar index
After witnessing selling pressure during the past few trading sessions, the dollar index seems to be showing some restraint. It is back above 99 i.e. the 50-day moving average. However, the index faces a key hurdle at 100. If the index manages to break out of that level, it can establish a considerable rally. But if it declines again, it can be expected to test crucial support at 98.3. Below that level, the index might invite more bears.
Trade strategy
The rupee has been registering lower lows recently, indicating a considerable bearish momentum. Moreover, despite improved inflation and trade balance data, the local currency is exhibiting weakness today. As long as the rupee remains below 76.5, the likelihood of a further decline is more. So, for intraday, traders can sell the rupee on rallies with stop-loss at 76.4
Supports: 76.55 and 77
Resistances: 76 and 75.7
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