The Indian rupee is struggling to seek a direction since the beginning of this month.

The currency is stuck inside a narrow range between 63.30 and 63.68. The rupee opened at 63.45 and fell to a low of 63.58 by Tuesday. Though it reversed higher, it lost ground again after recording a high of 63.35 on Wednesday and has closed the week at 63.47.

In recent weeks, the Greek crisis and global strength in the US dollar have not materially weakened the rupee. Nor has the sharp 10 per cent fall in crude oil prices and the surge in the Indian equity markets given the currency a leg-up.

The new bail-out programme for Greece got the green signal from both the Greek and German parliaments last week.

But the currency market continues to remain nervous, which is evident from the sharp sell-off in the euro last week.

The currency tumbled 2.9 per cent which, in turn, helped the dollar index surge 2.7 per cent. The rupee remains insulated from all this at the moment, but if the impact escalates in the coming weeks, then the rupee could come under pressure.

Policy measures

On the domestic front, a few policy measures were announced which could have a long-term impact on the currency. The proposal to club different categories of foreign investments, like Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI) into one single composite structure was cleared last week.

This is aimed at easing the path for foreign investors and boosting inflows.

However, banking and defence sectors are not included here and will continue to have the individual sub-limits. Banking has been one of the key sectors where foreign portfolio investments have run out of headroom.

Towards the end of the week, the Commerce Ministry announced that an interest subvention scheme for exporters would be unveiled in order to aid struggling Indian exports.

Data released last week showed that Indian exports were down for the seventh consecutive month. In June, exports fell 15.8 per cent to $22.29 billion.

The trade deficit for June stands at $10.83 billion, lower than $11.76 billion for the same period last year.

In a scenario where the overall global growth and trade are in a slowdown, can the interest subvention scheme boost domestic exports? We will have to wait and see.

Apart from the trade data, both the Wholesale Price Index (WPI) and the Consumer Price Index (CPI) numbers were released last week. The WPI fell to minus 2.4 per cent in June from minus 2.36 per cent in May. The CPI rose to 5.4 per cent in June from 5.01 per cent in May.

While there is no major macro-economic data release scheduled this week, the Justice AP Shah panel, which is looking into the issue of levying MAT (Minimum Alternate Tax) on Foreign Portfolio Investors, is likely to submit its report.

This could be a key event to watch as any uncertainty could trigger short-term outflows.

Dollar outlook

The fall in the euro (1.0830) and the Japanese yen (124) lifted the dollar index (97.86). Immediate resistance is at 98 and a break above this level can take the index higher to 98.60 and 98.75 this week. Supports are at 97.65 and 97. Existing home sales and new home sales are the two key data releases to be watched from the US that could influence the dollar movement.

Both the euro and the yen remain weak. Euro can fall to test 1.07 in the near term. A further break will increase the danger of it falling to 1.05.

The yen can weaken to 125.30. The fall in these two major currencies can help the dollar index move higher. Global strength in the dollar could limit the rise of the rupee.

Rupee outlook

Muted and range-bound moves in the rupee for more than two weeks have left the immediate outlook unclear.

A breakout on either side of the current 63.30-63.68 range will determine the next leg of move. A move above 63.30 can take the rupee higher to 63.

If the currency manages to get past this psychological hurdle, it can extend the upmove towards 62.75 in the short term.

This is a key trend-line resistance level and the rupee strengthening beyond this in the short term looks unlikely.

On the other hand, if the rupee breaks the current range below 63.68, it can fall to 64 and also revisit 64.30.

This is a key support level to watch in the medium term. If broken, it can see the rupee weakening to 64.83 thereafter.

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