News Analysis

Rupee seeks direction

Gurumurthy K BL Research Bureau | Updated on January 10, 2018


Geo-political tensions raise level of uncertainty and may cap the domestic currency’s strength

The rupee was volatile in a narrow range between 63.85 and 64.17 in the past week. The currency failed to sustain above 64 as the increasing geo-political tension is making the market nervous.

The rupee reversed lower from the week’s high of 63.85 and fell below 64 again. It touched a low of 64.17 and recovered slightly from there to close at 64.05 on Monday.

The weak growth numbers for the first quarter limited the rupee’s strength in the past week. The economy grew at 5.7 per cent in the first quarter of this fiscal, down from 6.1 per cent in the previous quarter.

The country’s growth has been declining consistently over the last five quarters since March 2016 and is currently at a three-year low. Weak growth numbers could weigh on the rupee from a long-term perspective.

The strong recovery in the manufacturing sector failed to impact the rupee.

The Nikkei India Manufacturing Purchasing Managers’ Index has recovered sharply to 51.6 in August from 47.9 a month earlier.

Dollar outlook

The positive impact of the strong growth numbers on the dollar index was short-lived in the past week. The US growing at 3 per cent in the second quarter helped the dollar index rise to a high of 93.35.

But the greenback failed to sustain higher and has come off from there to trade at 92.50. The weak job numbers released on Friday is keeping the dollar index under pressure. In August, the US added 156,000 to its non-farm payroll as against the market expectation of 186,000.

The dollar index faces resistance at 92.75. Immediate support is at 92.35. A break below it can take the index lower to 92 or even 91.5 thereafter. But if the index manages to sustain above 92.34, there is a strong likelihood of it moving higher to 93.5 and 94 levels again.

The fall in the dollar index in the past week has failed to support the rupee, as the market remains nervous after North Korea’s nuclear test over the weekend. Unless the situation eases, the rupee might not gain much in spite of the dollar weakness.

Rupee outlook

The rupee has a key support at 64.35 and resistance at 63.85. A range-bound move between 63.85 and 64.35 is possible in the short term. A breakout on either side of 63.85 or 64.35 will determine the next leg of trend for the currency.

If the rupee manages to break above 63.85, it can strengthen to 63.60 — a crucial Fibonacci retracement resistance level. A strong break above it can take the currency higher to 63 thereafter.

On the other hand, if the rupee declines below 64.35 in the coming days, it can weaken to 64.50 immediately. Further fall below 64.50 can drag the currency lower to 64.70 and 64.80 thereafter.

Published on September 04, 2017

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