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The rupee tumbled on Tuesday with GDP growth in Q1 falling to a six-year low. The Indian currency opened at a much lower 71.97 against the dollar, versus Friday’s close of 71.40. After making an intra-day low of 72.40, the lowest since December 2018, the rupee closed at 72.39 on Tuesday. The rupee is the worst performing Asian currency so far this year, barring South Korean won.
The recent measures announced by the Finance Minister to boost the auto and banking sectors have not enthused the market much. The announcement of the transfer of ₹1.76-lakh crore as dividend transfer by the RBI to the government has also not cheered investors, as the Centre still has limited room to provide stimulus to boost the economy. Weak auto sales numbers for August paint a dismal picture of the underlying trend in consumption demand, which has been the major driver of the growth in the economy. The currency faces pressure as FPIs continue to pull money out of the equity market, net selling ₹2,775 crore in the past four trading sessions.
Uncertainty over the outcome of trade talks between the US and China and Brexit has resulted in a surge in demand for the dollar, which has weighed on the rupee.
The dollar index broke above the critical resistance at 98 levels, and continues to rally on the back of strong demand for the greenback. The index looks very bullish and is most likely to reach 100, a very important psychological level. Beyond 100, the dollar index rally can intensify, and the index might head towards 103.5 in a short span of time, leading to further downside pressure on all major currencies, including rupee.
The rupee failed to move past the resistance zone between 71.30 and 71.40 twice during the past one week. It continued to decline, and Tuesday’s close at 72.40 confirms the breakout of the range, which indicates further weakness. The currency is just 2.8 per cent away from its lifetime low of 74.48 against the dollar.
The rupee is expected to face further selling pressure, owing to weak market sentiment. Hence, the currency can depreciate to the next support levels of 72.60 and 73 in the coming days. Near-term resistance is at 72, which is expected to hold strong.
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