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It was another volatile week for the Indian rupee. The currency tumbled to a new low of 72.96 on Tuesday last week and managed to recover from there. A sharp fall in the US dollar index allowed the currency to strengthen above 72 levels on Friday. However, the strength in the currency was short-lived, as the rupee reversed sharply lower, giving up most of the gains after making a high of 71.75. The currency closed at 72.63 on Monday.
Volatility is guaranteed in the coming week as well as the period is packed with key events. The US Federal Reserve meeting is on Wednesday. A 25-basis-point rate hike this week has been factored in by the market. The Fed’s signals on concerns about the ongoing trade war between the US and China will be keenly watched and could influence the currency movement to a great extent. The second key event is the US GDP data, which will be released on Thursday. A strong growth number will strengthen the speculation in the market that the Fed could increase the pace of rate hikes going forward. This can strengthen the US dollar, which in turn, will drag the rupee lower.
On the domestic front, the government is likely to announce the list of non-essential commodities that will come under import curbs. It is also likely to reveal measures to boost some of the commodities to bring down the current account deficit (CAD).
WTI crude oil prices have risen sharply, breaking above $71 per barrel, as expected in the past week. The price has surged over 4 per cent, and is currently at $72. The bullish outlook is intact. The prices can move up further to $76 and $78 in the coming weeks. This is likely to widen the trade and current account deficits. So, whether the government measures can overshadow the impact of oil price rise to arrest the fall in rupee and bring down CAD remains to be seen.
Rupee outlook
The outlook for the rupee continues to remain bearish. As mentioned last week, the currency can remain range-bound between 72 and 73 for some time. But the bias will continue to remain negative. A strong break below 73 can see the rupee weakening to 73.7. A further break below 73.7 will then increase the likelihood of the rupee tumbling to 74.5 thereafter over the medium term.
The rupee will gain bullish momentum only if it records a decisive close on a weekly basis. In such a scenario, there is a strong likelihood of the rupee appreciating towards 71 and 70.
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