Money & Banking

Rupee’s strength may be short-lived

Gurumurthy K BL Research Bureau | Updated on July 10, 2018

Dollar weakness, slow down in foreign money outflows give temporary relief

 

 

The Indian rupee revisited 69 levels in the past week, but has managed to recover. The currency made a low of 69.03 on Friday and reversed sharply higher from there. It made a high of 68.48 on Monday and came off from there to close at 68.72, up 0.11 per cent for the week.

Dollar weakens

The US dollar index falling over a per cent in the past week helped the rupee sustain above 69 in the past week. The dollar index made a high of 95.15 in the initial part of the week, but failed to sustain at that level. The index has tumbled from this high and is currently trading at 93.80.

The near-term outlook is negative for the index. Resistance is at 94.20, which is likely to cap the upside in the near term. A fall to 93.3, or even 92.8, looks likely in the coming days. Such a fall in the dollar index can retain the rupee above 69 in the coming days.

Oil prices

Crude oil prices will, however, need a close watch. Even if the dollar index falls to 93.3 or 92.8, a rise in the oil prices may keep the rupee insulated from the positive impact of a weak dollar.

The WTI Crude Oil ($73.5 per barrel) prices has crucial resistances ahead at $75.35 and $76.45. A strong break above $76.45 will pave the way for the next target of $80 and even higher. Such a rally can drag the rupee below 69 towards 70 and 71 levels against the dollar in the coming weeks. But as long as oil remains below $76.45, an intermediate dip to $70 is possible, and it may help in retaining the rupee above 69.

FPIs snap sell-off

Foreign Portfolio Investors (FPIs) ended their prolonged selling streak in the past week. After selling for eleven consecutive weeks – the longest since August 2013, pulling out around $6.5 billion – FPIs turned net buyers of Indian debt last week. They had bought $130 million worth of Indian debt. FPI action in the coming weeks will need a close watch. If they remain net buyers of debt, it may ease the pressure on the rupee. But if the FPIs begin to sell the Indian debt again, it will drag the rupee below 69 in the coming days.

Rupee outlook

Though the rupee is managing to sustain above 69, the price action on the chart indicates that it lacks buying interest to take it decisively higher. Key resistances for the rupee are at 68.30 and then at 68. The currency will gain bullish momentum only if it manages to breach 68 decisively. But a strong break above 68 looks less probable at the moment. A range-bound move between 68 and 69 is possible in the short term.

The bias will, however, continue to remain bearish. An eventual break, and a decisive weekly close below 69, will bring back the selling pressure in the currency. In such a scenario, the possibility is high of the rupee tumbling to 70 and 71 levels.

Published on July 09, 2018

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