Rising oil prices leave rupee under pressure for a fall to 72.5

Gurumurthy K | Updated on February 04, 2019

Representative image   -  Getty Images/iStockphoto

A break above 96 can take the Rupee further higher towards 96.5

BL Research Bureau

Three weeks of narrow sideways range movement between 70.45 and 71.50 in the Indian rupee has come to an end. The rupee declined, breaking the range below 71.50, and fell to a low of 71.82 on Monday. The currency closed at 71.80, down about a per cent for the week.

Dollar recovers

The US dollar index fell sharply last Wednesday following the Federal Reserve meet. The Fed surprised the markets by indicating that it would remain “patient” in determining the interest rate moves in the future.

The dollar index fell from around 96 to a low of 95.15 after the Fed outcome. Though the rupee opened with a gap-up on Thursday, it failed to sustain higher and retain the strength as a result of the weakness in the dollar.

The dollar index has recovered from its low of 95.15 and is currently trading at 95.70. A test of 96 looks likely in the near term.

A break above 96 can take it further higher towards 96.5. Such an upmove in the dollar index can continue to keep the rupee under pressure.

Oil gains

The strong rise in oil prices continues to exert more pressure on the rupee compared to the dollar index.

WTI-crude oil prices have surged over 5 per cent in the past week from around $52 per barrel to currently trade at $55.2 per barrel. The level of $53.5 will now be a good support.

As long as oil trades above this support, there is a strong likelihood of it moving higher towards $58 and $59 in the coming days. This in turn will increase the likelihood of the rupee declining below 72 against the US dollar.

Rupee outlook

The wide gap-down open on Monday is a negative for the rupee and has also increased the pressure on it. The level of 71.4 is an immediate resistance. Next significant hurdle is in the 71.00-70.90 region.

Supports are at 71.80 and 72. If the rupee manages to reverse higher from either of these supports, an interim recovery towards 71.5 or 71.4 is possible.

However, a bullish outlook on oil prices leaves the rupee vulnerable to break below 72 in the coming days. Such a break will increase the likelihood of the rupee weakening towards 72.4 and 72.5.

Published on February 04, 2019

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