Global Investor

Rupee could gain in the short term

Gurumurthy K | Updated on November 22, 2014

PO22_Currency_Outlook.eps

Strong foreign inflows and support at 61.17 have cushioned the rupee



The Indian rupee opened on a weak note last week and fell to a low of 61.19 on Thursday. But thereafter, the currency gained strength to close at 60.83, down 0.3 per cent for the week.

The rupee, which was hovering around 61 levels for most of the week, threatened to fall sharply.

But thanks to strong inflows from foreign portfolio investors (FPIs), the currency managed to gain strength towards the end of the week. FPIs bought $732 million in debt and $54 million in equities last week.

On the macro economic data front, wholesale price index (WPI) inflation and trade deficit numbers were released last week. The WPI fell to a five-year low of 3.74 per cent in August from 5.19 per cent in July.

The trade deficit narrowed to $10.8 billion in August. But gold imports surged to $2 billion in August from $1.8 billion in July and just $739 million in August 2013.

This is a cause for concern as it could widen the CAD and keep the rupee under pressure.

In the absence of any major macro economic data released this week, the rupee will be largely influenced by FPI flows and dollar movement against other major currencies.

Dollar index

After a short pause, the dollar index (84.73) resumed its rally last week and closed above its crucial resistance at 84.5. It can now rise to 85 . A weak euro, and yen — the two major components of the index — could aid the dollar index to surge in the coming days.

Dollar-rupee outlook

The reversal from 61.19 last week is significant from a technical standpoint, as both trendline as well as the 55-week moving average are poised near this level. This could act as a key short-term support for the rupee.

As such, the rupee could strengthen to 60.4, and a move above 60.4 could take it higher to 60.3 and 60.15 in the coming week.

The short-term outlook for the rupee will turn negative only on a strong fall below 61.17 — the 55-week moving average, in which case the rupee could fall to 61.45.

The medium-term view remains bearish for a fall to 62. Any intermediate strength in the rupee could be limtedto 59 which is a key medium-term resistance.

However, this level would be tested only if the rupee breaches the psychological 60 level.

Published on September 21, 2014

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