Global Investor

Rupee remains resilient

Gurumurthy K | Updated on November 22, 2014


Foreign inflows and strong equity markets limited the currency’s fall

The Indian rupee shrugged off the volatility in global financial markets after the US Federal Reserve meeting on Wednesday and the surprise stimulus announcement by Japan on Friday.

The currency opened at 61.175 and fell to 61.55 on Friday. However, the Indian equity indices surging to fresh all-time highs helped the rupee pare some of its losses to close at 61.365 on Friday, down 0.14 per cent for the week.

The continued inflows from foreign portfolio investors (FPIs) also supported the currency. FPIs bought $857.8 million in debt and $379.2 million in the equity segment last week.

The currency could come under fresh pressure in light of fiscal deficit data that was released after the market close on Friday. The deficit until September widened to ₹4.38 lakh crore. This is 82.6 per cent of the full-year target and raises concerns about whether the goal of containing the deficit at 4.1 per cent of GDP will be kept.

It is going to be another short week for the Indian financial markets due to holidays falling on Tuesday and Thursday. The market will be watching the HSBC Manufacturing Purchasing Managers’ Index (PMI) today and the Services PMI on Wednesday.

Dollar index

Last week, the dollar index (86.92) closed strongly above its key hurdle of 86. The outcome of the US Federal Reserve meeting on Wednesday, followed by good GDP numbers on Thursday and a surprise stimulus package from Japan on Friday helped a strong rally. Immediate support for the index is at 86.6 and key short-term support is at 86. If it rises above these supports, a further rise to 87.5 and 87.8 looks likely in the short term.

Dollar-rupee outlook

The reversal from the low of 61.55 is a positive for the rupee in the near term. Immediate support for the currency is at 61.45.

While below this level, the rupee can strengthen to 61.2.

A break above 61.2 could take it further higher to 61 in the short term. On the other hand, a fall and a decisive close below 61.45 would signal short-term weakness in the rupee. In such a scenario, the rupee could fall to 61.8 immediately and then to 62 thereafter.

The medium-term outlook remains bearish. The rupee has been stuck between 61 and 62 for the fifth consecutive week. The strength in the rupee could be limited to its significant resistance at 60.

This level can be tested on a strong break above 61.

Key medium-term support is at 62.2. Declines below this level could drag the currency lower to 63 or even 64 in the medium term.

Published on November 02, 2014

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