Money & Banking

Rupee likely to weaken to 76 against dollar

Akhil Nallamuthu | | Updated on: Dec 07, 2021
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Likelihood of a recovery above 75 in the near term is less

The rupee (INR) continued to slide against the US dollar last week. After slipping below the key level of 75, the domestic unit now trades marginally below the next important level of 75.40 against the greenback.

With that, INR has extended the year-to-date (YTD) loss to about 3.2 per cent as it closed at 75.44 on Tuesday. Given the prevailing circumstances, the rupee is likely to depreciate further.

The US Non-Farm Payroll (NFP) data released last week did not have significant impact on the dollar. Even though the new jobs added, at 2,10,000, fell short of the expectations, the monthly unemployment rate has dropped to 4.2 per cent, the lowest level since March 2020. Nevertheless, FPIs (Foreign Portfolio Investors) continue to dump Indian equities, the primary driver of the local currency downwards. NSDL (National Securities Depository Limited) data show that net outflows in the first week of December stand at ₹14,558 crore. Equities took the biggest hit and the net outflows is currently at ₹14,245 crore.

Charts

After breaching the important support level of 75 last week, the rupee continued to depreciate. Notably, it closed below the support of 75.40 on the both the sessions of this week, indicating persisting weakness. On the chart, INR looks set to decline further and it will most likely touch the 52-week low of 75.67.

A break below this level can take the domestic currency to 75.80, below which 76 can offer support. If there is a recovery from here, it will face hurdles at 75.40 and 75.20. The likelihood of a recovery above 75 in the near term is less.

The dollar index, which witnessed a minor correction of late, found support at 95.50. It rebounded from that level and currently trades around 96.40. The overall trend is up and so the dollar index will most probably resume the uptrend, where the nearest resistance can be seen between 96.90 and 97. A breakout of 97 can take the index to 97.60. That in turn can drag the rupee.

Outlook

After a minor dip, the dollar seem to be strengthening again, and technically INR stays bearish. Also, the FPI outflows is working against the domestic currency. These factors can be expected to keep the rupee under pressure. The rupee can weaken to 75.67 in the near-term. On the upside, a recovery beyond 75.20 in the upcoming week is less likely.

From the perspective of trading, one can consider shorting rupee as it continues to stay bearish. That is, one can short at current level and short again on a rally to 75.20.

Keep stop-loss at 75. When INR slips to 75.67, revise the stop-loss to 75.40. Liquidate the shorts at 76.

Published on December 07, 2021

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