Rupee likely to strengthen further

Gurumurthy K BL Research Bureau | Updated on January 11, 2018

Intermediate dips, if any, may be limited

The rupee has begun the new year on a positive note. The currency remained resilient all through last week. It touched a high of 63.25 on Monday, but gave back some of its gains and closed at 63.50.

Weakness in the dollar continues to aid the rupee. The dollar index broke below a key support level of 92.5 and fell to a low of 91.75 on Tuesday last week. Since then the index has been stuck in a narrow range between 91.75 and 92.30.

A strong break above 92.30 can ease the downside pressure and trigger a relief rally to 93. Further break above 93 is unlikely at the moment and the outlook will remain negative as long as the index remains below 93.

A fall below 92 towards 91 is possible in the short term. Also, as long as the index remains below 93, the possibility of it falling to 90 or 89.8 cannot be ruled out.

Data watch

US inflation data is due for release on Friday and will be keenly watched. A strong inflation number could boost the dollar as it would turn the focus back on subsequent rate hikes.

On the domestic front, the Consumer Price Index (CPI) based inflation and the Index of Industrial Production (IIP) data are scheduled for release on Friday.

This will be followed by the Wholesale Price Index (WPI) based inflation number which will be released on Monday (January 15). The export-import numbers are also due for release during the week.

Rupee outlook

The rupee has key near-term support between 63.60 and 63.70. Also, a cluster of supports are poised between 63.80 and 64 which are likely to limit the downside in the rupee in the short term.

The possibility of a pull-back move as witnessed on Monday, extending towards 63.60-63.70 or even lower levels in the coming days cannot be ruled out.

However, the outlook for the rupee will turn negative only if it declines below 64 decisively. Such a strong fall below 64 looks less probable at the moment.

As long as the rupee remains above 64, it can strengthen to 63 in the short term. A strong break above 63 will increase the likelihood of the rupee strengthening to 62 over the medium term.

Key words: Rupee movement, dollar, dollar strength, rupee outlook, dollar index

Published on January 08, 2018

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