It was a volatile week for the rupee as the currency swung widely in both directions. The rupee tumbled to a fresh two-year low of 66.89 on Monday, and was on the verge of declining below the 67-mark. However, recovery in the stock market indices helped the currency gain ground. The rupee reversed higher to record a high of 66.24 before closing at 66.41 on Wednesday, down 0.33 per cent for the week.

While the global markets get ready for the important US Federal Reserve meeting next week (September 16-17), volatility in the market is expected to remain high in the coming days. Ahead of this key event, a few important macroeconomic data releases are due on the domestic front. It includes the Index of Industrial Production (IIP) on Friday. Both the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) inflation data will be released on Monday. The trade and current account data are also due for release in the coming week.

Foreign Portfolio Investors (FPIs) continued to sell in theequity segment. They sold $665 million in the past week. In all, they have sold about $3.3 billion in the equity segment in the past three weeks. However, in the debt segment FPIs continue to remain passive. They sold just $106 million of debt in the past week. FPIs might continue to remain inactive in the debt segment at least until the outcome of the US Federal Reserve meeting is known next week. If it triggers a strong sell-off in the Indian debt segment similar to the one witnessed in equities now, then the rupee could come under tremendous pressure.

Dollar index

The mixed US jobs data on Friday failed to give a clear cue on whether the Federal Reserve will raise interest rates this month. It has left the dollar index (96.20) directionless within a narrow range of 95.7 and 96.6. A breakout on either side of the 95.7-96.6 range will determine the next move for the index. On the charts, the bias is bullish for a break above 96.6 in the coming days. Such a break could take the dollar index higher to 97 and 97.4. On the other hand, if the index falls below 95.7, it can fall to 95.3 and 95.

Rupee outlook

The reversal from the high of 66.24 and an indecisive close on Wednesday reflect weakness. Immediate resistance is at 66.25 and the rupee will gain strength only if it breaks above this hurdle.

Such a break can take the currency higher to 66.10 and 65.95 this week. At the moment, the upside is expected to be limited to 65.95, where the 21-day moving average is positioned.

Having said this, the rupee could remain range-bound between 66 and 67 for some time, with a bearish bias. However, if the rupee manages to breach 65.95, it could strengthen to 65.

On the other hand, immediate support is at 66.50. Any decline below this level will weaken the rupee to 66.80 in the coming week. It will also increase the chances of the currency testing its key short-term support at 67. A strong break below this support will make the rupee fall to 67.7.

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