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The rupee has given back all the gains it made in 2017 in the first six months of this calendar year. After a robust 6.3 per cent rally against the US dollar last year, the currency has reversed lower and has been beaten down badly since the beginning of 2018, losing 6.7 per cent against the greenback.
The rupee tumbled 1.4 per cent in intra-week trade to record a new all-time low of 69.09 on Thursday. However, the currency recovered immediately from those lows on possible intervention by the Reserve Bank of India (RBI). It made a high of 68.33 on Monday, but reversed lower again to close at 68.79, down 0.97 per cent for the week.
A strong surge in crude oil prices has been keeping the rupee under pressure. Indeed, the rupee is weakening more in tandem with the rally in oil prices than due to the strength in the US dollar. The West Texas Intermediate (WTI) crude oil prices skyrocketed over 8 per cent in the past week from around $68 per barrel to $74 per barrel.
Foreign portfolio investors (FPIs) continue to sell Indian debt for the eleventh consecutive week. They sold $255 million worth of Indian debt in the past week. FPIs have been on a selling spree over the last five consecutive months. They have offloaded $6.17 billion in Indian debt in the first six months of this year – the highest outflow in the first half of any calendar year. The continued sell-off by FPIs is also another major factor that has been keeping the rupee under pressure this year.
The rupee is among the worst-hit emerging currencies this year. However, within the BRICS (Brazil, Russia, India, China and South Africa) nations, the loss in the rupee is relatively lesser. The Chinese yuan outperformed the BRICS currencies by losing just 1.7 per cent against the dollar, followed by the Indian rupee, which was down 6.7 per cent. The Brazilian real, down 14.6 per cent, is the worst, followed by the South African rand (down 9.8 per cent) and Russian rouble (down 8.1 per cent).
Rupee outlook
Though the Indian rupee has recovered from its all-time low, the outlook remains negative. The price action indicates that the currency is facing resistance in the 68.35-68.30 region. The currency should breach 68.30 decisively to gain further strength and move up to 68 and 67.85 levels. But such an upmove of breaking above 68.3 looks less probable at the moment.
As long as the rupee remains below 68.3, there is a strong likelihood of it weakening towards 69 levels again. A pull-back from 69 will keep it range-bound between 68.3 and 69 for some time. A strong break and a decisive weekly close above 69 will be a good sign of the rupee heading for another fresh low. In such a scenario, the possibility of the rupee falling over the medium term to 71 levels will increase.
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