Foreign portfolio outflows, crude oil drag rupee lower

Gurumurthy K BL Research Bureau | Updated on January 19, 2018 Published on February 17, 2016


Crude oil continues to jolt the global markets. Russia and Saudi Arabia agreeing on Tuesday to limit the oil output to their January production level failed to convince the market.

The other members of the Organization of the Petroleum Exporting Countries (OPEC) have also agreed for the same, but with a condition that Iran and Iraq should also freeze their production.

But Iran, which is gearing up to boost its production after the removal of the sanctions has indicated that it will not agree to limit its production. The uncertainty is keeping the global markets nervous.

The Indian rupee managed to remain broadly range bound the whole of last week in spite of the turmoil caused in the domestic stock markets. But, the currency seem to be losing ground now after with a gap-down below 68.5 on Wednesday.

Crude oil price fall and a sharp reversal in the dollar index have taken the rupee lower by 1.1 per cent so far in the past week. Rupee is currently trading near 68.60 against the dollar.

There is no major economic data release on the domestic front this week. So, oil price and the dollar index movement would continue to dominate in influencing the rupee movement in the upcoming truncated trading week. The currency market is closed on Friday for a public holiday.

The actions of Foreign Portfolio Investors (FPIs) will also need a close watch. Their selling seems to be intensifying. They had sold $353 million in debt and $423 million in the equity segment in the past week.

Watch the dollar index?

The dollar index (96.75) has reversed sharply higher from an important support level of 95.50. Strong support for the index is in the 95.70-95.50 zone. On the charts, there is no danger for any further fall in the index as long as it trades above this support zone.

Immediate resistance is at 97. A strong break above this hurdle can take the index higher to 97.75 and 98 there after. Such a rise in the dollar index could drag the rupee further lower.

The dollar index will come under renewed pressure only if it breaks and closes decisively below 95.5 on a weekly basis. The next target will be 95. Further break below 95, will increase the danger of the index falling to 94 thereafter.

Rupee outlook

Rupee has a very important support at 68.8 and 69. But given the current uncertainty in the global markets, the possibility of breaking this support remains high, unless the Reserve Bank of India (RBI) intervenes. Also, the presence of an immediate resistance is at 68.45 is likely to limit the upside for the rupee in the near-term.

A strong break below this 68.8 and 69 supports can see the rupee weakening to 69.7 or even 70 thereafter. The possibility of the rupee finding a temporary bottom around 70 levels cannot be ruled out.

On the other hand, if the currency manages to reverse higher from the 68.8-69.0 support zone itself, it can move higher to 68.45 or 68.25 in the coming week. The 21-day moving average near 68 could limit the short-term strength in rupee to that level.

Published on February 17, 2016
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