The currency markets were not unduly disturbed by the drama surrounding the debt ceiling stalemate. The rupee strengthened slightly to 60.93 to a dollar on Friday as the US Senate gave permission to raise debt till February 7 next year. But the cheer could not last and the Indian currency declined to 61.65 by Tuesday.
The rupee has not gone anywhere over the past two weeks; it is stuck in the range of 60.93 and 61.72.
Strong foreign portfolio flows into the equity market is not helping the rupee much as foreign institutional investors continue to pull money out of debt. The FIIs have net sold about $1.4 billion in debt in October while net purchasing $1.5 billion worth of equity.
DOLLAR INDEX
The dollar index dropped sharply on Thursday, after the US Government shutdown ended and the debt ceiling issue was resolved. Increase in risk appetite made the dollar index drop below its 200-week moving average support, which is currently at 79.9.
The next important support is at 79, which needs to hold to avoid a further decline in the index. A break below 79 will result in opening the doors for a decline to 75-74.
The US non-farm payroll data release on Tuesday has failed to meet market expectations. This could keep the dollar index under pressure to break below 79.
DOLLAR-RUPEE OUTLOOK
The short-term outlook for the rupee is weak. A rounding pattern formation is visible in the daily candle chart with strong resistance at 61. If the currency is unable to move above the hurdle at 61, it can weaken to 63.0-63.5 in the coming days. But if the rupee rallies beyond 61 taking cues from the bad US non-farm payroll data released on Tuesday, then it can strengthen to 60.5-60 in the short term.
However, the medium-term view is bullish for the rupee. It is expected to strengthen to 59 over this period. The rupee has key medium-term support in the 64-65 zone.