News Analysis

Rupee hovers above a key support

Gurumurthy K | Updated on January 24, 2018 Published on January 22, 2018

A break below 64 can lead to renewed weakness in the currency

It was a volatile week for the rupee. The currency witnessed a sharp fall last Tuesday and touched a low of 64.11.

However, this sharp down-move was short-lived as the rupee managed to recoup most of the loss thereafter. It rose to a high of 63.63 on Friday and fell back again on Monday to test 64 before closing at 63.87, down 0.6 per cent for the week.

Deficit concerns

India’s trade deficit widening to a three-year high was a major trigger in dragging the rupee lower towards 64.11 initially last week. The weak data also kept the currency under pressure all through the week by limiting the upside.

Data release from the Commerce Ministry showed that the country’s exports in December 2017 increased 12.36 per cent (year-on-year) and the imports surged 21.12 per cent over the same period.

A sharp rise in gold and crude oil imports pushed the trade deficit to a three-year high of $14.88 billion. The deficit was $10.55 billion a year ago in December 2016 and was at $13.83 billion in November 2017.

Crude oil prices are expected to remain elevated and increases the possibility of the deficit widening in the coming months. This could restrict the strengthening of the rupee from a long-term perspective and keep the currency under pressure.

Dollar outlook

Uncertainty on whether the US government will run into a shutdown kept the dollar mixed all through last week. The dollar index was stuck in a narrow range between 90 and 91 over the last one week. The index had not reacted much on Monday after the government shutdown came into effect from Saturday.

The immediate outlook for the index is unclear. A crucial support for the index is at 89.80. Whether the index manages to reverse higher from there or not will be the key in deciding the next trend. A bounce from this support can ease the downside pressure and trigger a relief rally to 91 or even 92. But a strong break below 89.9 will increase the likelihood of the index tumbling to 88. Such a fall in the dollar index may aid the rupee to strengthen further.

Rupee outlook

As long as the rupee manages to sustain above 64, the short-term outlook will remain bullish. The currency will come under pressure only on a strong break below 64. Such a break can drag the rupee lower to 64.5 and 64.6 over the short term. Having said that, while the rupee remains above 64, it can move up to test the key resistance levels of 63.25 and 63. Inability to break further above 63 can keep the rupee range-bound, between 63 and 64, for some time.

But if the rupee manages to surpass the hurdle at 63, it can strengthen further to 62.8 and 62.7. As mentioned last week, this move towards 62.8 or 62.7 is possible only if the dollar index breaks below 89.8.

Published on January 22, 2018

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
null
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.