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The rupee, by closing at 81.88 against dollar, was almost flat on Tuesday. Thus, it continues to stay within the key levels of 81.60 and 82.15, in line with our expectations. Nevertheless, the Indian currency has been gaining since March and the overall inclination is still positive.
The gain was largely driven by the foreign inflows. According to the NSDL (National Securities Depository Ltd) data, the net FPI (foreign portfolio investors) inflows in March and April stood at $0.7 and $1.7 billion, respectively. The gains could’ve been better because the increase in the foreign exchange reserve hint that the RBI might have bought dollars, which might have limited the gain in the rupee.
That said, this week the Fed is set to announce their monetary policy on Wednesday. This can result in the dollar-rupee establishing a fresh leg of trend on either side. The market, at large, expects a 25-bps hike in rate. Any deviation from this can increase the volatility in the dollar-rupee pair.
Charts are unable to signal a trend as the local currency continues to consolidate.
Chart
The rupee, at 81.88, lies within the 81.60-82.15 range. As long as the rupee stays within this price band, the next leg of trend will be uncertain from the perspective of technicals. A breakout of 81.60 can lift the rupee to 81.10 quickly. But if there is a breach of the support at 82.15, we might see a decline to 82.50.
The dollar index (DXY) which is trading in the 100.80-102.20 range, is now testing the upper band. In case there is a breakout of 102.20, it could rally to 103.50, a resistance level. However, if DXY falls off the resistance, it can find support at 101.20 and 100.80. A breach of 100.80 can turn the trend bearish, which can be positive for the rupee.
Outlook
According to the charts, the rupee might extend the sideways trend this week as well and stay within 81.60 and 82.15. However, the interest rate announcement from the Fed can establish a trend from the current level, which can be on either side. Therefore, participants need to exercise caution at the moment.
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