Weekly Rupee view: Rupee likely to stay positive

The rupee (INR) continued its upward journey in the past week as well and is now trading around the important level of 73 against the dollar (USD).

The past month performance of the Indian currency has been good such that it has now become one of the best performing Asian currencies from one of the worst. The rupee has recovered the loss it made in April and the year-to-date performance is almost flat.

WPI Inflation shoots up

The Wholesale Price Index (WPI) has hit a 11-year high as it stood at 10.49 per cent (YoY) in April according to the data released by the Ministry of Commerce. The sharp increase in the inflation is because of higher crude oil price according to the release.

Also read: Rupee rises 5 paise to 73.24 against US dollar in early trade

The annual rate of inflation under ‘Fuel and Power’ category was recorded at 20.94 per cent. WPI inflation went up sequentially too and notably, it has seen an increase in four consecutive months. While this can be a cause of concern, INR hardly reacted to it; in fact it appreciated post the news and therefore, the rupee seems to have come over it.

FPI outflows

Over the past week, the foreign portfolio investors (FPI) pulled out money from the domestic market and the net outflows in May is now at ₹6,144 crore. Thus, there has been an outflow of about ₹2,000 crore during the last week. Equities remained the weakest link as the net outflow currently stands at ₹10,266 crore whereas debt segment has witnessed net inflow of ₹1,125 crore so far this month.

Also read: Wholesale inflation rises to 10.5% in April

Other segments like the hybrid and inflows through voluntary retention route stays positive too i.e., the net inflows are at ₹905 crore and ₹2,092 crore, respectively. Although the FPI flows has not been conducive, the domestic currency managed to stay steady, showing considerable resilience. However, if the FPI outflows intensifies, it can weigh on the rupee.

INR-USD chart

Technically, the rupee is bullish, at least with respect to the short-term trend. The rally which it established a month ago remains strong and there are no signs of a trend reversal at the moment.

From the near-term trend perspective, the price band of 73.40 and 73.50 holds the key and as long as the local currency holds above it, the trend can be bullish. Nevertheless, it now faces a hurdle at 73, which is likely to be breached given the prevailing bullishness.

The chart of dollar index looks bearish, a positive factors for the rupee. On Tuesday, it slipped below an important support of 90, reinforcing the downtrend. The price action indicates further decline in the index where a decline to 89.3 is highly likely. Such a drop can lift the Indian currency.

Outlook

The rupee seemed to have brushed off the high inflation numbers and also the FPI outflows as it continued to move up on the back of weakening dollar.

This trend will most probably continue in the coming week as well where the exchange rate of USD INR can be expected to move towards 72.80. If the momentum sustains, INR can even touch 72.35. However, keep an eye on 73, an influential level.

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