Money & Banking

Foreign money outflows, costlier oil will keep rupee under pressure

Gurumurthy K BL Research Bureau | Updated on June 26, 2018

The rupee witnessed some wild swings and volatile moves in the past week.

The currency initially fell to a low of 68.24 on Thursday and recovered from there, breaking above the psychological level of 68. The Rupee made a high of 67.71 on Friday, on the back of the weakness of the US dollar. However, the currency failed to sustain higher and declined below 68 again on Monday and closed at 68.13, down 0.21 per cent for the last week.

 

 

Watch the oil

The sudden downward reversal on Monday, despite a stable dollar, raises the concern that the rupee may have reacted to the surge in crude oil price on Friday.

The West Texas Intermediate (WTI) Crude Oil prices surged over 4 per cent on Friday after the Organisation of Petroleum Exporting Countries (OPEC) meet.

The OPEC decided to increase the supply, but the quantum is expected to be much lesser than what the market had anticipated. This triggered a sharp rally in the oil prices on Friday.

If crude prices continue to remain high and move up further, the rupee could remain under pressure. The increase in oil prices will push the import bill higher, which in turn would widen the trade deficit. So, the oil price movement will need to be watched closely in the coming days.

Foreign Portfolio Investors (FPIs) remained net sellers of Indian debt for the 10th consecutive week. They sold $666 million in Indian debt in the past week and have offloaded $6.39 billion over the last 10 weeks.

FPI selling spree

The continued selling spree from FPIs could limit the strength of the rupee and is likely to retain the pressure on the currency.

The inability to sustain above 68 in the past week is a negative for the rupee. The region between 67.9 and 68 will be a key resistance to watch. A strong break above 67.9 is needed for the rupee to gain momentum and strengthen towards 67.7 and 67.5 levels. But such a strong move looks less probable.

Rupee outlook

The possibility of the rupee remaining below 68 looks high. A key support is in the 68.4-68.5 region, which is likely to be tested in the coming days. If the rupee manages to reverse higher from this support region, a range-bound move between 68 and 68.5 can be seen for some time.

But a strong break below 68.5 will increase the downside pressure and will drag the rupee to a fresh low of 68.9 and 69 levels in the short term. Further break below 69 will see the rupee tumbling towards 70 and 71 levels over the medium term.

Published on June 25, 2018

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