Rupee snaps six-week fall

The rupee’s free-fall, which was in place over the last six consecutive weeks, came to an end last week. The currency, which, in the initial part of the week, was threatening to revisit its all-time low of 68.86, made a sudden reversal on Friday. The currency made a low of 68.46 on Wednesday.

After hovering around this low for some time, itmade a sharp reversal on Friday, breaking above the key psychological level of 68. It surged to a high of 67.29 on Monday before closing at 67.42, up 1 per cent for the week.

The sharp and the sudden upmove over the last couple of trading days, in spite of the US dollar remaining strong, increases the doubts that it could be on the back of the Reserve Bank of India’s intervention.

Strength to be short-lived

Though the pressure on the rupee has eased over the last couple of days, overall indicators suggest that this strength is likely to be short-lived. The US dollar continues to remain strong. The dollar index extended its rally, breaking above the key resistance level of 93 last week. The index is currently hovering around a key resistance level of 94.20. However, a key support is at 93.60, which can limit the downside if the index reverses lower from current levels. As such, a subsequent break above 94.20 will take the index higher to 95, or even 96 in the short term. Such a rally in the dollar index will keep the strength in the rupee capped.

Even on the domestic front, the factors are not in favour of the rupee retaining its current strength as foreign portfolio investors (FPIs) continue to pull out money from the debt segment. FPIs remained net sellers of Indian debt for the sixth consecutive week. They sold $880 million in the debt segment last week, and have offloaded $4.9 billion worth of Indian debt over the last six weeks. FPIs’ continuing the selling spree may keep the rupee under pressure.

The sharp move above 68 in the past week has given a breather to the rupee. This has turned the near-term view positive for the rupee.

There is room for the currency to strengthen further in the coming days towards 67.10 and 67. However, key resistances in the 67.10-67 region may halt the upmove and trigger a downward reversal. Inability to break above 67, and a subsequent pull-back move from this resistance zone, can drag the rupee lower to 68.5 again.

It will also increase the likelihood of the currency revisiting the previous lows of 68.86 levels.

As mentioned last week, the region between 68.85 and 68.90 is a crucial medium-term support to watch. A strong break below 68.90 will see the rupee falling to fresh lows of 70 and 71 levels over the medium to long term.

On the other hand, if the rupee manages to breach above 67 in the coming days, it will increase the possibility of the upmove extending to 66.5 in the short term.