Crude oil prices have been sliding since the past week which helped the rupee to gain moderately against the dollar . Nevertheless, it still remains one of the weakest Asian currency with year-to-date (YTD) loss of about 3 per cent. While the price of Brent futures is testing the $100-mark after falling from the high of $139.1 a barrel, the domestic inflation data released on Monday dragged INR down despite beginning Tuesday’s session on the front foot. On Tuesday, the local currency closed at 76.61 versus Monday’s close of 76.57.
Government data shows that the Consumer Price Index (CPI) inflation in February this year stood at 6.07 per cent as against 5.03 per cent in the same month last year. Sequentially, there wasn’t much change as it was 6.01 per cent in January this year. The Wholesale Price Index (WPI) inflation too went up last month. It was recorded at 13.11 per cent as against 4.83 per cent a year ago. In January this year, it stood at 12.96 per cent.
Another factor weighing on the Indian currency is the relentless selling by the Foreign Portfolio Investors (FPI). The net outflows in March is at $6.1 billion and. For the calendar year, the net selling has almost touched $15 billion.
Therefore, even though the crude oil prices corrected significantly, the rupee is not able to gain much on higher inflation and FPI selling. While the fundamental factors are not helping the rupee, the charts, on the other hand, also shows rupee bear trend.
The rupee appreciated and marked a high of 76.07 last Thursday. But it fell back below the important level of 76.30. It has been trading below this level for the past few trading sessions, hinting at an inherent weakness. The nearest support from the current level of 76.61 is at 77. If the rupee falls below 77 again, it could see another round of selling, possibly dragging it to 78 in the short run. Alternatively, it the rupee appreciates, it can find hurdles at 76.30 and 76.
The dollar index (DXY), which dropped sharply in the middle of last week, recovered by taking support at 98 and is currently trading around 99. The price action over the last week suggests that the index could stay sideways in the short run, although the overall trend is bullish. It might start oscillating between 98 and 99.30.
Crude price falling is good for the rupee. However, the higher inflation numbers is acting as a drag and the FPI selling is negative too. But the dollar might be heading for a sideways crawl in the coming week. Thus, there is a possibility of the dollar- rupee currency pair staying between 76 and 77 with a bearish bias for the next one week.
We recommended to short rupee at 76.90 and 76.30 with stop-loss at 75.90 last week. Traders can hold these positions. When the rupee falls below 77.50 modify the stop-loss to 76.90. Exit the shorts at 78.