News Analysis

Rupee recovers on weak dollar

Gurumurthy K BL Research Bureau | Updated on March 26, 2018

Gets breather The initial trigger for the rupee’s recovery came from the US Federal Reserve meeting last week   - more

The currency is expected to remain strong this week

The rupee, which was threatening to fall in the initial part of the last week, surprised with a sudden recovery. The currency made a low of 65.24 on Tuesday last week and reversed higher breaking above the psychological level of 65. The rupee made a high of 64.80 on Monday before closing at 64.87, up 0.48 per cent for the week.

The rupee is expected to remain stable in the coming truncated week. The Indian markets are closed on Thursday and Friday on account of public holidays.

The initial trigger for the rupee’s recovery came from the US Federal Reserve meeting last week. The Fed increased the interest rates as expected by 25 basis points and also retained its plan for a total of three rate hikes for this year. But, the market was expecting the Fed to change its stance and revise the number of hikes to four this year on the back of a strong economy. So, the dollar index reversed lower after the Fed meeting outcome. As a result, the rupee got a breather and reversed higher from the week’s low of 65.24 levels. The dollar index had reversed sharply from around 90.40 in the past week. The fall has intensified after US President Donald Trump signed a memorandum that could impose tariffs on Chinese imports worth $60 billion. This event dragged the dollar index below the key support level of 89.40, thereby intensifying the down-move. The short-term outlook for the dollar index is negative. There is a strong likelihood of it falling towards 88.5 in the coming days. Such a fall in the dollar index can keep the rupee strong and push it higher in the coming days.

Rupee outlook

The rupee has a key resistance near current levels at 64.80. This resistance was tested on Monday and the rupee has come off slightly from there. If it manages to break above this hurdle at 64.80, the currency can move higher towards 64.40 initially. Further break above 64.40 will see the rupee strengthening to 64.25 thereafter.

On the other hand, if the rupee fails to break above 64.80 and continues to remain below it, a downward reversal is possible. In such a scenario, the rupee can fall to 65 and 65.25 levels again. The currency can remain range-bound between 64.8 and 65.30 for some more time. A breakout on either side of 64.8 or 65.3 will decide the next trend for the rupee.

Published on March 26, 2018

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