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The rupee has gone nowhere in the last couple of weeks. It is stuck in a narrow range between 64.70 and 65.22. It closed at 64.93 on Wednesday. Neither domestic macro economic data nor the strength in the US dollar managed to move the rupee.
On the domestic front, trade data was the only major data release in the past two weeks. Although the trade deficit narrowed to $10.48 billion in September from a deficit of $12.48 billion a month ago and $14.47 a year ago, fall in exports remains a worry. It is also over-shadowing the positive impact of the sharp fall in energy prices, that has dragged imports lower. India’s exports tumbled for the 10th consecutive month on a year-on-year (y-o-y) basis. Exports in September fell 24 per cent (y-o-y) to $21.85 billion. For the coming week, the Nikkei India Purchasing Managers’ Index (PMI) number on Monday is a key data to watch on the domestic front.
The rupee also remained insulated from the strong surge in the dollar. The European Central Bank hinting at a fresh stimulus made the dollar index (96.75) move above its important resistance at 96 in the past week. Whether the dollar will continue its surge or reverse lower will depend on the outcome of the US Federal Reserve meeting. The same could be a trigger to make the rupee move out of its current range too.
Rupee outlook The immediate outlook for the rupee is unclear. The currency will need to make a strong breakout on either side of its current 64.70-65.22 range to provide give us a clue about its intentions.
The presence of the 100-day moving average at 64.81 and the 21-week moving average at 64.77 forms a strong resistance level for the rupee around the upper end of the current range. This leaves open the danger of a decline below 65.22 in the coming days. Such a fall will take the rupee lower to 65.5 initially and then to 65.70 thereafter.
On the other hand, the rupee will gain strength only if it manages to surpass the resistance at 64.70. On the charts, the chances of this happening appear bleak unless the US Federal Reserve hints at a rate cut only next year. The upside target for the short term on a break above 64.70 will be 64.50 and 64.30.
The upside could be capped at the key 64.00-63.80 medium-term resistance zone. A break above this resistance zone looks unlikely. A reversal from here will increase the danger of a revisit of 66 or lower levels over the medium term.
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