Global Investor

Rupee puts up a resilient show

Gurumurthy K | Updated on November 22, 2014

Supported by foreign capital inflows, shrugs off dollar strength

The Indian rupee extended its rally to close stronger for the third consecutive week. The currency gained ground from a low of 60.88 per dollar on Wednesday and strengthened to 60.38 on Friday before closing at 60.47, up 0.49 per cent for the week.

Surprisingly, the Indian rupee remained unfazed by sudden strength in the US dollar against most major currencies, including the euro and the pound. This could be due to foreign portfolio investor (FPI) buying. The FPIs bought a record $2.65 billion in debt on a single day on Wednesday, taking the net purchase of debt in the past week to $3 billion. In the equity segment, they bought $433 million worth of stocks. The release of GDP data is due this Friday. The impact of this release will be felt in the subsequent week, since Indian markets are closed on Friday.

Dollar index

The dollar index (82.33) surged in the past week. Strong economic data releases in the past week and minutes of the US Federal Reserve’s July meeting −which showed that the US could increase rates soon − pushed the index higher. In addition to this, US Federal Reserve Chair Janet Yellen has said quantitative easing is expected to end in October. This is a negative for the Indian rupee. It also suggests that the strength in the rupee could be short-lived and the currency could feel the heat once the US announces its rate hike plan.

Dollar-rupee outlook

The outlook for the euro and the pound is bearish and they look poised for a further fall. This could help the dollar index rise further. Support for the index is at 81.7 and a rally to 83 looks likely in the short term. The short-term outlook for the Indian rupee is bullish. Support for the currency is at 60.65. There is no danger of a fall as long as the rupee remains above this level. The rupee could strengthen to test the psychological level of 60 in the coming week. A break above this level could take it further higher to 59.75 in the short term.

The bullish outlook will get negated if the currency declines below 60.65, in which case the ensuing target will be 61.

In the medium term, 59 is a key resistance for the rupee. The probability of the rupee testing this level will increase if the currency decisively breaches the hurdle at 60. However, a rally beyond 59 looks less probable at the moment. A reversal from here could see the rupee weaken to 61 to a dollar levels in the medium term.

Published on August 24, 2014

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