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The rupee ended Tuesday’s session slightly lower at 82.70 against the dollar. However, contrary to our expectations, the Indian currency appreciated over the past week even though the greenback was relatively stable.
The domestic currency gained despite the negative foreign flows. As per NSDL data, over the past week, net FPI outflows stood at about $310 million, which weighed on the rupee.
According to some experts, the domestic currency might have gained on the back of the possible intervention by the Reserve Bank of India (RBI) as an attempt to keep the exchange rate of USDINR stable.
Technically, the trend turned bearish following the breach of the support at 83 a fortnight ago. But the rupee has now recovered and remains above this support. Below is an analysis of the charts.
Chart
The rupee, which rose sharply last week, depreciated after marking a high of 82.36 last Thursday. Currently trading at around 82.70, the domestic unit has good support at 83. However, the strength in the dollar is likely to result in the INR retesting this support again this week.
If the rupee slips below 83, it might decline to 83.40. A breach of this can drag the rupee to 83.75. On the other hand, if the local currency manages to rally, it is likely to face resistance at 82.40. Subsequent resistance is at 82.
The dollar index (DXY) broke out of the resistance at 103.50 last week and is now trading at 104. The trend is bullish, and as it stands, the probability of DXY breaking out of 104.50 is high. In such a case, it can touch 105.25 swiftly. Above this, there is a barrier at 105.75. Thus, the price band of 105.25–105.75 is a resistance band against which the index could see a fall.
Nevertheless, the rally towards the above-mentioned levels can weigh on the Indian currency. That is, DXY surpassing 104.50 can lead to the rupee falling below 83 again.
Outlook
Given the current conditions, the INR is expected to drift lower to 83 in the near term. Post this move, the next leg of the trend depends on how the rupee reacts to this support. It will also be influenced by the dollar index, thus needing a close watch.
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