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The strength and momentum in the Indian rupee present in the first week of April seems to have faded slightly this week. The Indian rupee made a high of 81.76 on Monday and has reversed lower below 82 again. The domestic currency closed on a weak note at 82.13 on Tuesday.
However, the current weakness is likely to be short-lived. The dollar index and the crude oil price have been broadly stable. So, the rupee can regain strength taking cues from the bullishness in the domestic market.
Weak dollar
The dollar index (102.20) has a strong resistance at 103. As long as it stays below this resistance, the near-term outlook is negative. The index can fall to 101-100.5 in a week or two. The dollar index has to break 103 and then see a subsequent rise past 104 to become bullish. That looks less likely. So, the preference will be to see the index falling to 101-100.50.
The US Consumer Price Index (CPI) inflation data release is due on Wednesday. This is important to watch as it can influence the dollar movement and in turn impact the rupee.
Any sign of the inflation cooling down in the US would be negative for the dollar. That will increase the speculation in the market that the US Federal Reserve could slow down the pace of its rate hikes.
Range bound
Brent crude ($83.84 per barrel) is stuck between $84 and $86 per barrel for more than a week now. A breakout on either side of $84-86 will determine the next move. A break above $86 can take it up to $88. On the other hand, a break below $84 can take it down to $82. Brent crude price will have to rise past $90 per barrel to add pressure on the domestic currency.
Rupee outlook
Immediate support for the rupee is at 82.20. Below that 82.30 and 82.45 are the next strong supports. There are chances for the rupee to remain below 82.20 or 82.30. But in case a break below 82.30 is seen, then the maximum downside could be 82.45. A strong trigger might be needed to break 82.45.
We can expect the rupee to reverse higher again anywhere from 82.20 to 82.45. That can take it above 82 again and retest the resistance at 81.75. This resistance at 81.75 has held very well this week. However, the expected reversal mentioned above will have the potential to break 81.75 and strengthen towards 81.40-81.30 in the short-term.
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