Technical Analysis

Short-term outlook weak for rupee

Akhil Nallamuthu BL Research Bureau | Updated on October 16, 2019 Published on October 16, 2019

Rupee was trading at 70.81 against the dollar. File Photo   -  BusinessLine

 

The rupee, which had been holding between 70.75 and 71.4 against the dollar since the beginning of October, came under considerable selling pressure from the beginning of this week. On Wednesday, it closed at 71.43.

The rupee is the weakest Asian currency this month and year-to-date the currency has declined by 2.4 per cent against the dollar. This was despite FPIs pumping money into the financial markets.

Until October 16, they have made net investments of ₹2,799 crore in the equity segment but net sold ₹566 crore in the debt segment. Thus, the combined net investments stand at a positive ₹2,238 crore. The rupee came under pressure when the World Bank cut India’s growth forecast for the current fiscal to 6 per cent and the IMF slashed the projections to 6.1 per cent for 2019. The weak India Industrial production data, which registered a de-growth of 1.1 per cent for August, too, weighed on the rupee.

The trade balance data provided some relief for the domestic currency, as the trade deficit for September came in at $10.86 billion, against $14.95 billion in the same month of the previous year.

Also, the CPI increased to 3.99 per cent for September, against 3.7 per cent in the same period last year. But there was a significant reduction in WPI as it came at 0.33 per cent for September, versus 5.22 per cent for the corresponding month last year.

There was some relief following the initial phase of trade talks between the US and China. The prevailing geopolitical unease in West Asia may keep the dollar demand intact on the back of its safe-haven status.

The dollar index is currently trading above a crucial support of 98. If the index breaks below that level, it could face some pressure, possibly correcting to 97 levels. On the upside, the index faces resistances at 99 and 100 – an important psychological level. An appreciation in the dollar index could impact the rupee negatively.

By studying the chart of the rupee, one can safely assume that the short-term outlook has turned weak for the rupee, as it has breached a key support at 71.4, breaking below the range between 70.75 and 71.4.

This increases the chance for further depreciation.

On Wednesday, it gained by 0.15 per cent and closed at 71.43. The inability to cross the critical level of 71.4 for the second consecutive day implies weakness going forward. The level of 71.4, which now acts as resistance, could stop it from further appreciation. Hence, the rupee could depreciate to 72 in the near term.

Published on October 16, 2019
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