Global Investor

Rupee nears a key hurdle

Gurumurthy K | Updated on April 06, 2014


Rupee could be held up by medium-term resistances at 59 and 58

Strong foreign portfolio inflows into the Indian stock market took the benchmark indices to new highs and helped the rupee strengthen beyond the psychological level of 60 last week. The currency remained strong throughout the week and rose from Monday’s low of 60.85 to 59.69 on Friday before closing at 59.89, up 1.7 per cent for the week. The rupee has strengthened by 3.2 per cent in the fourth quarter of FY14.

A slew of economic data releases will influence the rupee’s movement this week. FY15 will begin with the Reserve Bank of India’s monetary policy on Tuesday. The consensus is that interest rates will be left unchanged at this meeting. The manufacturing purchasing managers’ index (PMI) is also slated to be released on the same day. The services PMI is due for release on Friday.

The interest of foreign institutional investors (FIIs) seems to have shifted toward equity. FIIs pumped $1.7 billion into equities last week, taking their net investment for March to $3.29 billion. Though they have sold debt worth $410 million over the past two weeks, they remain net buyers for the month, with net inflows of $1.87 billion.

Dollar index

The dollar index was stuck in a narrow range between 79.75 and 80.25 last week. Price action within this range suggests the formation of a triangle. If the index manages to breach 80.25, it could rise to 80.8 in the coming week. The release of US non-farm payroll data on Friday would decide the index direction in the near-term.

Dollar-rupee outlook

The short-term view for the rupee is positive. A close above 60 for the week and the month is strengthening the bullish bias. The level of 60 will now be an important psychological support for the currency. The next support is at 60.3. While above 60, the rupee could strengthen to 59.45 in the coming week. The strength in the rupee may pause temporarily at 59.45, as it is a key short-term resistance. A reversal from here, however, could see the rupee weakening to 60.3 or even 60.6 thereafter. On the other hand, if the rupee manages to breach 59.45, it could target 59.

The medium-term view is bullish, with key support levels for the rupee at 61 and 62. The currency may strengthen to 59 or 58 in the medium term. However, the strength in the rupee is expected to be limited to 58.

Published on March 30, 2014

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