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sharp sell-off in the Indian as well as the global equity markets, coupled with a strong surge in US treasury yields, have kept the rupee nervous over the last one week.
The Indian benchmark indices tumbled over 4 per cent in the past week and the sell-off has intensified after the Union Budget. The US 10-year treasury yields have risen sharply from around 2.70 to 2.85 in the past week.
The rupee, which was hovering around 63.5, reversed sharply lower and fell, breaking below the psychological level of 64. The currency hit a low of 64.22 on Monday before closing at 64.07, down 0.75 per cent for the week.
The sell-off in the Indian equity market, which is getting intensified, can keep the rupee under pressure.
Also, events like the Reserve Bank of India’s policy meeting on Wednesday, the Index of Industrial Production (IIP) and the Consumer Price Index (CPI) inflation data on Monday next week may keep the currency market volatile.
Dollar consolidates
The dollar index is trading on a mixed note. The index, which fell to a low of 88.5 last week, got a breather from the US jobs data last week.
The US non-farm payroll increased by two lakh in January, against the market expectation for an increase of 1.8 lakh jobs. The average hourly earnings increased 2.9 per cent (year-on-year) in January.
The strong jobs and earnings numbers are bringing in fresh talks in the market of the chances of the US Federal Reserve increasing the interest rates four times instead of three times this year.
The dollar index, though has bounced after the jobs data, is not gaining momentum. The index is stuck in a narrow range between 88.5 and 89.6 for more than a week now.
A breakout on either side of 88.5 or 89.6 will decide the next move. But the broader outlook remains weak as long as the index stays below 90 and a fall to 88 cannot be ruled out in the coming weeks.
Rupee outlook
The fall below 64 has turned the near-term view negative for the rupee. The region between 64 and 63.9 will now serve as a strong resistance and cap the upside in the coming days.
A fall to 64.3 is likely in the coming days. A break below 64.3 will increase the likelihood of the rupee extending its fall to 64.4 and 64.5 thereafter.
The downside pressure will ease only if the rupee breaks above 63.9. In such a scenario, the rupee can regain strength and revisit 63.5 levels. But such a move looks less probable at the moment.
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