Following the inflation print last week, the dollar (USD) depreciated sharply. As the consumer prices (CPI inflation) in the US rose at a slower than expected pace of 3.2 per cent in October, the argument favouring further rate hike has weakened more. For comparison, the US CPI inflation stood at 3.7 per cent in September.
While the dollar index (DXY) dropped over 2 per cent since the announcement of data, the rupee (INR) has lost a marginal 0.2 per cent versus the greenback. It closed at 83.35 on Tuesday.
This is despite good foreign inflows. According to the NSDL (National Securities Depository Limited) data, the net FPI (Foreign Portfolio Investors) inflows over the past week stood at $568 million.
Market experts believe that the domestic demand for the dollar from importers kept the rupee at bay. However, the Indian currencycontinued to stayin the range of 83-83.30. This price band has remained true for over two months now.
As the exchange rate has largely been moving sideways, there are no definite indications of a trend on the charts.
Although the rupee has closed at 83.35, slightly below the support at 83.30, the break does not appear decisive.
If INR bears capitalise on the current weakness and drag it further, the nearest support the local unit can find is at 83.50. Below this, the region between 83.80 and 84 can offer good support. If INR appreciates, the immediate resistance is at 83. Subsequent barriers are at 82.70 and 82.50.
The dollar index fell below a key level at 104.50 last week. It is now approaching another important support at 103.
If this level is breached, DXY will most likely depreciate to 102. In such a case, INR can move towards 83. But if the dollar index bounces off this level, the support at 83.30 for the rupee will face a severe test. The immediate resistance for DXY from the current level is at 104.50.
In its current condition, the rupee is likely to continue moving within 83 and 83.30. But one needs to be watchful of how the dollar index reacts to its support at 103.
If DXY declines below 103, expect INR to head towards 83. On the other hand, if DXY rebounds, the local currency might weaken towards 83.50.