Near-term outlook positive for rupee

The rupee gained momentum in the past week. The currency continued to strengthen all through the week, breaking above the psychological resistance level of 65. It touched a high of 64.69 before closing at 64.72 on Monday, up 0.87 per cent for the week.

A series of key domestic macroeconomic data releases in the past week, coupled with a slightly weak US dollar, helped the rupeestrengthen.

The Consumer Price Index (CPI) inflation remained stable at 3.28 per cent in September, and the Index of Industrial Production (IIP) rose 4.3 per cent in August, the highest in nine months. Both these data, coupled with a rally in the equity market, helped the rupee breach above 65 on Friday.

The trade deficit data released after market hours on Friday boosted the currency momentum on Monday. The deficit narrowed to $8.98 billion in September from $11.64 billion in August.

The positive sentiment triggered in the past week on the back of good economic data releases may continue to impact the currency in the coming truncated week as well.

Two more trading days are left for the week as the markets are closed for two days on Thursday and Friday on account of Diwali.

The dollar index failed to break above 94 and fell in the past week to a low of 92.80. However, the index has reversed higher again from this low. The price action on the chart suggests alack of fresh selling interest to drag it below 93.

As long as it sustains above 93, there is a strong likelihood of the index moving up to 94 levels again. Such a move in the dollar index may restrict the rupee’s gains this week.

On the other hand, if the dollar index breaks below 93, it can fall to 93.65, a key near-term support level. Further break below this support will increase the pressure on the index and can drag it to 92 or even 91.5 thereafter.

The strong break above 65 witnessed in the past week is a positive for the rupee. The near-term outlook remains bullish. The rupee can strengthen further to test 64.60 initially this week.

A break above 64.60 can take the currency further higher to 64.47. The 64.47 level is a key short-term trend resistance which is likely to halt the current upmove.

A downward reversal from this resistance may have the potential to take the rupee lower to 64.85 or even 65 levels again. On the other hand, if the rupee manages to break above 64.47 in the coming days, it can strengthen to 64.30 thereafter.