The Indian rupee retained its momentum and strengthened against the US dollar for the second consecutive week. The currency made a low of 67.4 last Tuesday and gained strength to make a high of 66.7 on Friday. However, the currency gave back some of its gains from this high and closed at 67.01 on Monday.
The Reserve Bank of India surprised the markets last week by keeping rates unchanged. There was wide expectation of a 25-basis point rate cut from the RBI. The RBI’s decision not to reduce the rates also helped the rupee remain strong.
Also, the rupee has managed to stay sturdy in the past week in spite of the US dollar index reversing sharply higher. The dollar index rose about 1.6 per cent from its low of around 99.2, to the current levels of 100.75. The index has a very crucial resistance near the current levels at 101. It has to surpass this hurdle decisively to gain momentum and extend this upmove. Failure to break above 101 may pull the index down to 100 or even lower. In such a scenario, a range-bound move between 99 and 101 can be seen for some time. On the other hand, if the dollar index manages to breach above 101 decisively, a rise to 101.5 or 102 can be seen thereafter.
The strong break above the key resistance at 67.1 is very significant for the rupee. The currency now has strong support in the 67.10-67.30 region. The currency will come under pressure for a fall to 68 or 68.30 in the short term only if it declines below 67.30 decisively. Having said this, the outlook will continue to remain positive for the rupee in the near term as long as it trades above the 67.10-67.30 support zone.
The next key resistance is at 66.55, which is likely to be tested in the near term. Inability to break above this hurdle may increase the likelihood of the rupee trading range-bound between 66.55 and 67.10 or 67.30 for some time. But if the currency manages to break above 66.55 decisively, it can strengthen further to 66.20 or even 66 thereafter.
The currency has been broadly range-bound between 66 and 68.85 for more than a year now. The recent sharp upmove from around 68 is the last couple of weeks, keeps this broader sideways range intact for the currency. The recent sharp rise in the last couple of weeks from around 68 has increased the possibility of the rupee testing 66 – the upper end of the range. The rupee may need some strong trigger to break the range above 66, which looks less probable. So, for now, the upside in the rupee is expected to be capped at 66 and the currency can retain its 66-68.85 range for some more time.