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The rupee fell sharply last week, breaking below the psychological 65-level mark. The currency touched a low of 65.31 on Wednesday, but bounced back to recover some of the losses. It closed at 65.11 on Monday, down 0.5 per cent for the week.
Strong dollar continues to keep the rupee under pressure. The US dollar index surged, breaking above the key resistance level of 90.55 and tested 91 last week. The dollar index, however, fell back from the high to below 90.55 again after US President Donald Trump announced import tariffs on steel and aluminium.
But the rupee failed to absorb it as the domestic markets were closed on Friday on account of a public holiday. The dollar index is currently trading near 89.9. A key support is likely at 89.8.
Rupee trading levels
A strong break below it can drag the index lower to 89.5 and 89 in the coming days ahead of the jobs data release on Friday. On the other hand, if the dollar index sustains above 89.8 and reverses higher, it can breach the 90.55 hurdle and test 91 again.
A strong break and a decisive close above 91 will then pave the way for the next targets of 91.8 and 92.
Such a rally in the dollar index can increase the pressure on the rupee and drag it further lower.
Foreign portfolio investors’ continuing sale of Indian debt and equities over the last few weeks is also adding to the pressure on the rupee, along with the strength in the US dollar.
The FPIs have sold $1.18 billion in debt and $1.3 billion in equities over the last three weeks. If the FPI selling spree continues, the rupee’s strength will be limited and will remain vulnerable for fall further against the dollar.
Rupee outlook
Though the rupee broke above 65 on Monday, it failed to sustain higher.
The currency fell back again after making a high of 64.93. Inability to sustain above 65 reflects the inherent weakness in the rupee and also the presence of fresh sellers around the psychological 65 level.
This keeps the overall bearish outlook intact for the rupee. As long as the currency remains below 65, a fall to 65.5 is likely in the short term.
The medium-term outlook is also bearish. An eventual break below 65.5 will increase the likelihood of the rupee weakening towards 66 over the medium term.
The downside pressure will ease if the rupee manages to break above 65 decisively. In such a scenario, it can strengthen towards 64.6 or 64.5. However, strong resistance in the 64.5-64.4 region can limit the strength in the rupee in the short term.
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