Global Investor

Rupee faces key hurdle at 60.3

Gurumurthy K | Updated on April 28, 2014


Continuous FII debt outflows add to currency's woes

It was a volatile week for the Indian rupee. After opening at 60.30, the rupee tumbled 1.45 per cent to record an intra-week low of 61.19 on Wednesday.

However, the currency recovered most of its losses in the final sessions to close 0.55 per cent lower for the week at 60.62.

Month-end dollar demand from oil importers, weak inflows from foreign institutional investors (FIIs) and concerns over the Ukraine crisis dragged the rupee lower in the initial part of the week.

Dollar index

But strong dollar sales by banks at the end of the week helped the rupee recoup most of the loss. However, escalation in Russia-Ukraine tensions and weak FII flows could continue to put pressure on the rupee in the short-term.

FIIs remained net sellers of debt for the third consecutive week. They sold $427.6 million in debt last week.

The debt segment has witnessed total outflows of $1.56 billion in the last six weeks.

On the other hand, FIIs bought $272.9 million in equity in the past week. The dollar index faces resistance at 80 and has been moving between 79.5 and 80 for the second consecutive week. The index would gain momentum only if it breaches a key hurdle at 80, which could then take it higher to 80.5. Key support for the index is at 79.30.

The outcome of the US Federal Reserve meeting on Wednesday will be key to watch.

The Bloomberg-JP Morgan Asian dollar index (ADXY) has failed to breach its resistance at 116.

The index dropped sharply last week. Immediate support is at 115.

A decline below this level can drag the index lower towards 114 in the coming weeks. Such a break and fall will be a negative signal for the rupee.

Dollar-rupee outlook

The short-term outlook is weak for the rupee. Though the sharp reversal on Friday has eased some pressure, the currency faces significant short-term hurdles at 60.4 and 60.3. Support is at 61.05, where the 55-day moving average is positioned.

Price action on the daily line chart suggests that the rupee could strengthen to test 60.4 and 60.3 in the coming week.

However, the currency will need a strong break above 60.3 to turn the outlook bullish to test 60 and 59.8 thereafter.

Failure to move above 60.3 would continue to keep the currency under pressure. It will also leave open the possibility of a decline to 61.5 in the short-term. The medium-term view still remains bullish.

Key supports are placed at 61.5 and 62. As long as rupee remains above these levels, the chances are higher for it to strengthen to 59, and then even to 58.

Published on April 27, 2014

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