Money & Banking

Rupee is likely to remain under pressure

Gurumurthy K BL Research Bureau | Updated on August 28, 2018 Published on August 27, 2018

The INR appreciated by more than half a per cent as Bearish bets on USD mounted.   -  Getty Images/iStockphoto

 

 

The Indian rupee is continuing to oscillate around the psychological 70 mark. Surprisingly, the rupee failed to gain ground in the past week despite a weak dollar. The US dollar index fell sharply over a per cent last week from around 96.4 to 95.

The index is continuing to hover at lower levels at 95.

Though the Indian rupee managed to recover above 70, it failed to sustain higher. The currency made a high of 69.7 on Monday, and reversed sharply lower to close at 70.16, down 0.48 per cent for the week.

The Indian rupee’s inability to gain on the back of weak dollar reflects the inherent weakness in the currency.

As such, any new trigger will see the rupee tumbling to new lows again, going forward.

Two major data releases, one domestic and the other from the US, are key to watch this week. The US GDP data will be released on Wednesday.

A strong growth number will increase the talks in the market for a faster pace of rate increase by the US Federal Reserve.

The dollar may gain momentum in such a scenario, which, in turn, may leave the Indian rupee under pressure. This will be followed by the domestic GDP numbers which will be out on Friday.

The Reserve Bank of India seems to be in the market consistently to curtail any abnormal move in the Indian rupee. This is evident from the forex reserves data. India’s forex reserves have been coming down consistently since April. The country’s total reserves touched a high of $426 billion in mid-April, and has been declining since then. The reserves are down 6 per cent since then, and it currently stands at $400.85 billion as on August 17.

Foreign currency reserves (major component of the total reserve) are down 6 per cent from around $400 billion to $326 billion over the same period.

So, in the absence of any fresh triggers, the rupee may continue to oscillate around 70 or weaken at a slower pace on the back of the RBI’s intervention.

Dollar outlook

The US dollar index is hovering around a key support level of 95. If it manages to sustain above this support and gain momentum, an up move to 96.5 or even 97 is possible in the near term. Such a move will drag the rupee further lower going forward.

On the other hand, if the dollar index declines below 95 decisively, a fall to 94 is possible.

Such a fall can limit the downside in rupee in the short term.

Rupee outlook

The rupee may remain broadly range-bound between 69.4 and 70.4 in the near term. However, the bias will continue to remain bearish.

The upside is expected to be limited to 69 even if it manages to break above 69.4. The region between 69.1 and 69 is a strong resistance, which is likely to cap the strength in the rupee.

A strong break and a decisive close below 70.2 will be the first sign of fresh weakness emerging in the currency. It will increase the likelihood of the rupee breaking below 70.4 thereafter.

A strong break below 70.4 will see the rupee weakening to 71 or even 71.5 thereafter.

Published on August 27, 2018
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