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The rupee (INR), which was largely flat for about two weeks, saw a sharp fall on Tuesday to end at 82.0450 on the back of dollar (USD) strength. Thus, the local unit failed to surpass 81.6 for the third time since the beginning of March. With this fall, the rupee has become one of the weakest Asian currencies in the past week.
Nevertheless, the capital inflows have been solid. As per the NSDL data, the net FPI inflows for this month have already crossed $2 billion. Given that the domestic market appears positive, the foreign inflows might continue to come in. However, it may not fully translate into a rally in the Indian currency. This is because of the possible buying of dollars by the RBI. The increasing foreign exchange reserves hint at the accumulation of greenback by the central bank. In March and April, the reserves increased by $16 and $10.3 billion, respectively.
On the other hand, the charts show some weakness, so the rupee might see a minor decline from the current levels.
Chart
The rupee fell off the resistance at 81.60 for the third time in the last two months. It has now slipped below the 82-mark, and the price action hints at a fall to 82.30, which is the nearest support from here. Below this, immediate support can be spotted at 82.40 and 82.70.
But if the INR appreciates from here, it is likely to face barriers at 81.80 and 81.60. A breach of 81.60 might turn the medium-term trend positive, and we might see the local currency advance to 81.
The dollar index (DXY), currently trading at 101.50, is trading above the critical support band of 100.80–101. If there is a recovery, which looks likely this week, it might go up to 102.20, a resistance. A breakout at this level can take DXY to 103.15. That said, if the dollar index slips below 100.80, we might see another leg of the downtrend. The nearest support below 100.80 is at 99.20 and 98.
Outlook
The charts indicate that the rupee might depreciate from the current level, possibly to 82.30 this week. Yet, the US inflation data, which is set to be released on Wednesday, might have a significant impact on the movement of the USD-INR pair. Thus, participants should tread carefully.
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