What a great week it was for the Indian rupee, with the currency registering its first positive weekly close after ending in the red for six consecutive weeks. The rupee opened with a big gap-down at 62.235, but managed to gain ground from there, thanks to strong foreign portfolio investor (FPI) inflows and positive macro economic data. The currency strengthened beyond 62 to a high of 61.77 on Friday before closing at 61.78, up 0.4 per cent for the week.

FPIs bought $1.16 billion in the debt and $650.67 million in equities in the past week. Meanwhile, HSBC’s Purchasing Managers’ Index (PMI) numbers were also positive. The manufacturing PMI rose to a 21-month high of 53.3 in November from 51.6 in October, while the services PMI rose to 52.6 from 50 in the previous month.

There were no surprises in the Reserve Bank of India’s monetary policy meeting on Tuesday, which left key rates unchanged. Consumer price index (CPI) inflation and the index of industrial production (IIP) are key data releases due this week on Friday.

Three weeks of sideways consolidation in the dollar index (89.36) came to an end last week. The index surged 1.3 per cent to record a strong close above 89. The outlook is bullish and a rise to test 90, a key resistance, is possible this week. But an immediate break above this level might not be easy. Conversely, a reversal from 90 has the potential to trigger a corrective fall to 88 or even 86 thereafter.

Rupee outlook

The quick reversal from the low of 62.235 and a strong weekly close above 62 last week is a positive for the rupee. Immediate resistance is at 61.7. If the rupee fails to breach its immediate hurdle at 61.7, it will remain under pressure for a fall below 62 again and revisit 62.2 levels again.

But a break above 61.7 could see the rupee strengthen to 61.5 in the coming week. Nevertheless, the short-term strength in rupee could be limited to 61.5, as it is a strong resistance in the short term.

For the medium term, 62.35 and 61 are the key levels to be watched now. A breakout on either side of these levels will decide the next trend for the rupee.

On the charts, the bias is bearish. Though 61 can be tested, further strength beyond this level looks less probable at the moment. Having said this, a fall below 62.35 could drag the rupee lower to 63 and 63.6 in the medium term.

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