Rupee may consolidate around 72

The rupee depreciated steadily last week as volatility spiked on a bevy of global events, impacting the currency markets. The Indian currency hit an all-time low of 72.25 against the dollar on Monday.

It is one of the weakest performing emerging market currency, losing 3.9 per cent against the dollar since the beginning of the month. Infact, it depreciated against all major currencies, faring better only against South African rand and the Brazilian real.

The rupee faced pressure as FPIs net sold shares worth ₹5,088 crore in the past five trading sessions till Monday. It opened sharply lower on Monday as the US imposed additional tariffs on Chinese imports and cancelled the postponement of previous tariffs as a reaction to China’s retaliatory tariff on imports from America.

However, stimulus measures announced by Finance Minister Nirmala Seetharaman on Friday and US President Donald Trump’s latest statement on the possibility of renewed trade talks with China, calmed the markets and the Indian currency recovered to close at 71.48 on Tuesday. The announcement of the RBI approving the transfer of ₹1.76 lakh crore to the Indian government comes as an icing on the cake as it is expected to significantly boost the liquidity condition.

Fed watch

Theminutes of the FOMC meeting released last Wednesday showed that the committee members were divided about the July rate cut, raising doubts over the possibility of further interest rate cut in September meeting and fuelling short-term rally in dollar.

In his statement at the Jackson Hole economic symposium, Fed Chair Powell reiterated that the US economy is in a strong position and acknowledged that global growth has been deteriorating. He also stated that there’s no fixed rule book for trade uncertainties.

However, he stopped short of giving any clue about future interest-rate path by stating that he “will act as appropriate to sustain the expansion”.

The dollar index broke out of the critical 98 level, and sustained above that level for three trading sessions last week. But the dollar faced selling pressure on Friday as China placed additional tariff on $75 billion worth of imports from US from September 1. In response, the US imposed additional 5 per cent tariff on the existing $250 billion worth of products, and the remaining $300 billion of imports, which was to be taxed at 10 per cent, will be taxed at 15 per cent.

Technically, there’s a noticeable rejection in price between 98.25 and 98.45. As of result of that, weekly closing of the index was below 98, arresting the bullish momentum. Hence, until dollar index breaches 98.50 on closing basis, it will stay within consolidation range, increasing the probability of a decline to 97.10 in coming days.

Dynamic 50-day moving average support occurs at the same level. Immediate support is at 97.80, where the 20-day moving average is placed. Below 97.80 and 97.10, previous price action low at 96.50 is a reasonable support.

Outlook

The rupee is gaining traction after hitting a lifetime low 72.25 from where the recovery looks very sharp. On Tuesday, the currency opened higher at 71.72 against previous day’s close of 72.02, and after hitting an intra-day low of 71.87, it continued to appreciate, marking an intra-day high of 71.45 before closing at 71.48.

The new measures from the government seem to have instilled confidence and the price action indicates increased buying interest for the rupee, as we could observe a candlestick pattern in the chart, denoting a reversal in trend in favour of rupee. The rupee will trade with a positive bias until it stays above 72. With nearest resistance coming at 71.40, the Indian currency could consolidate between 71.40 and 72 for a while before trending in any direction. Fibonacci retracement level of 23 per cent of previous swing falls at 71.30 and, hence, rupee will find resistance zone between 71.30 and 71.40.

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