Global Investor

Rupee could gain ground

Gurumurthy K | Updated on November 22, 2014


The currency is reversing from the significant support at 61

The range-bound movement in the Indian rupee came to an end last week. The currency failed to hold on to its initial gains and fell from Monday’s high of 60.19 to a low of 61.04 on Wednesday. However, dollar sales by banks and corporates helped the rupee gain some ground and close at 60.66 on Friday, down 0.42 per cent for the week.

Currency movers

Consumer Price Index (CPI) inflation and Index of Industrial Production (IIP) data was released on Friday after the market close. CPI inflation eased slightly to 7.8 per cent in August from 7.96 per cent in July.

However, food inflation remained elevated at 9.42 per cent. Wha's more, IIP growth slowed to 0.5 per cent in July. High inflation and slow industrial growth limit the upside for the currency. Wholesale Price Index (WPI) inflation data is due for release today. Foreign portfolio investors (FPIs) continue to remain net buyers in the Indian market. They bought $894.6 million in debt and $445.3 million in the equity segment in the past week.

The dollar index paused last week after having risen sharply by 2 per cent in the previous four weeks. The resistance at 84.5 was tested last week.

Dollar outlook

Inability to breach this could trigger a corrective fall, which may take it lower to 83 in the coming weeks. On the other hand, a breach of 84.5 could take the index to the next target of 85. Since the index has risen over 5 per cent in a short span of over two months, there is a strong probability of a short-term corrective fall in the coming weeks. The outcome of the US Federal Reserve meeting on Wednesday would decide whether the index will breach 84.5 or reverse lower.

Since the rupee is reversing from a significant support, it could move higher in the short term. There is a possibility of the rupee strengthening to 60.3 in the coming week. A breach of this level could take the rupee further higher to 60.1.

On the other hand, a reversal from 60.3 could see the rupee revisit 61 levels. A strong daily close below 61 will open doors for a further fall to 61.2

In the medium term, 59 is the key resistance level for the rupee. This level could be tested if the rupee breaches the psychological 60 level. However, rupee strengthening beyond 59 looks less probable at the moment. Having said this, a reversal from here could see the rupee weaken to 62 in the medium term.

Published on September 14, 2014

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