Money & Banking

Outlook for rupee turns negative

Gurumurthy K | Updated on February 12, 2018 Published on February 12, 2018

Price action since beginning of 2018 increases the possibility of the currency revisiting 66 levels

It was a volatile week for the rupee. Increasing nervousness in the market on the back of the on-going sell-off in the domestic as well as global equity markets saw the rupee swing between 64 and 64.45 all through last week.

The currency closed at 64.31 on Monday, down 0.38 per cent for the week.

Dollar strengthens

A surge in US treasury yields, coupled with sell-off in global equities, are helping the US dollar regain strength.

The US dollar index witnessed a strong rise last week breaking above the key resistance level of 89.8.

The index has surged over a per cent and closed on a strong note above 90 last week. The level of 89.8 will now serve as a strong support and is likely to limit the downside in the short term.

While above 89.8, the dollar index can move up to 91 in the coming days. A break above 91 will then increase the likelihood of the upmove extending towards 92 in the short term. A strong US dollar can can take the rupee further lower in the coming days.

Watch the FPIs

Along with the dollar, foreign portfolio investors (FPIs) will also need a close watch in the coming weeks. After buying Indian equities consistently for six consecutive weeks, the FPIs turned net sellers last week.

They sold $1.15 billion in Indian equities in the past week. If the sell-off in global equities intensifies further, which is highly possible in the coming weeks, Indian equities will witness more outflows from the FPIs. This, in turn, will cap the upside in the rupee and can keep the currency under pressure.

Also, if the outflow spills over to the debt segment, the fall in the rupee might gain pace. In such a scenario, the possibility of the rupee weakening toward 65, 65.5 or even lower levels cannot be ruled out.

Rupee outlook

The rupee has key support in the 64.40-64.50 region. Both the 100- and 200-day moving averages are poised between 64.4 and 64.5.

As long as the currency sustains above 64.5, a range-bound move between 64 and 64.5 can be seen in the near term. However, the bias will remain bearish for the rupee to break below 64.5 since the US dollar index is looking strong.

An eventual break below 64.5 will see the rupee weakening towards 65 in the short term. The rupee will get a breather only if it breaks above 64 decisively. Such a break, though less likely, can take the currency higher to 63.85 or 63.8.

The price action since the beginning of 2018 is turning the bias negative from a medium-term perspective as well. Several weeks of narrow consolidation between 63.3 and 64 followed by a strong fall below 64 now has increased the possibility of the rupee weakening towards 66 in the coming weeks over the medium term.

Published on February 12, 2018

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.