Forex

Weekly Rupee view: INR looks set to appreciate

Akhil Nallamuthu BL Research Bureau | Updated on August 04, 2021

The dollar and the crude oil outlook is sluggish

The rupee (INR) was largely flat during the last week against the dollar (USD) as key factors influencing the domestic currency were flat. The USD, as indicated by the dollar index (DXY) stayed flat over the past week and there are no signs of it establishing a trend. Similarly, the price of crude oil, which has a negative correlation with the rupee, though flat, is exhibiting a bearish bias on the expectation of the increased supply as agreed by the OPEC countries. Also, there are now concerns over demand a weak economic data from China early this week.

On the other hand, the trade deficit seems to have widened, possibly dragging the rupee. While the data given by the Ministry of Commerce on Monday shows that the exports soared by 48 per cent in July, imports were up by 59 per cent increasing the trade deficit to $11.93 billion from about $9.4 billion in June. If this trend continues in the coming month, it can put downward pressure on the local currency.

FPI outflows

The fund flow by the foreign portfolio investors (FPIs) remained negative in July as the net outflows stood at ₹7,410 crore according the data by the National Securities Depository Limited (NSDL). Equities remained the weak spot as the net outflows in this segment was ₹11,308 crore. The selling by the FPIs seems to continue as the net outflows in the first two sessions of this month is already at ₹3,369 crore. But notably, the equity market was largely flat over the past six to eight weeks. However, the Indian equity benchmark indices hit record highs on Tuesday and this might encourage inflows into equities. Should fresh investments come in, the Indian unit will be a beneficiary as the demand can go up.

Chart

Looking at the daily chart, the price action shows that the rupee was oscillating within 74.20 and 74.60 over the past week even though it showed bullish bias. Today, INR has rallied past the resistance at 74.20 and marked an one-month high of 74.08. On the back of this, the rupee bulls could further push it upwards. But one should note that 74 is a hurdle. A breach of this level can lift the local currency to 73.60. On the other hand, if 74 blocks the uptrend and if INR drifts lower, it can find support at 74.20 and 74.60.

Outlook

The dollar and the crude oil is sluggish; the renewed bullishness in the equity market could attract fresh FPI flows and also the IPO can bring in more foreign inflows. Hence, the rupee is likely to gain and could possibly inch towards 73.60 in the short term.

Published on August 04, 2021

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