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BL Research Bureau
There has not been much movement in the rupee (INR) over the last week and the year-to-date loss of INR against the dollar (USD) now stands at about 1.6 per cent. The exchange rate of USDINR has largely been trading between 74.05 and 74.35. Even though it remains below the key level of 74, the exchange rate being stable is positive. Also, despite a minor drop in the foreign exchange reserves, it remains above $600 billion ($603 billion as per the latest data), the Reserve Bank of India (RBI) data shows. Holding huge reserves is healthy for the domestic currency as the RBI can tap it to curb higher volatility and provide stability.
Foreign flows
The equity market remains the top destination for the FPI (foreign portfolio investors) money, and since it has been flat over the past week, there were some outflows, bringing down the total net inflows in June. There was a considerable outflow of nearly ₹3,500 crore. and therefore, the net inflows in June stand at ₹10,145 crore as of Tuesday. While equities’ net inflows stand at ₹13,925 crore, the debt segment has seen a net outflow of ₹4,339 crore this month. If the FPIs continue to pull out, the rupee can come under pressure.
Technicals
The trend turned flat for the rupee, and it has been oscillating between 74.05 and 74.35 for over a week. While there will be a bearish bias until it stays below the support of 74, the net leg of the trend will remain unclear as long as it moves across a sideways trend. Since the 61.8 per cent Fibonacci retracement of the last rally coincides with the support at 74.35, the rupee bulls can regain control. Nevertheless, it should break out of 74 to establish a rally. In such a case, it can appreciate to 73.60 in the near term. On the other hand, if it slips below the key support of 74.35, it can fall below 74.50 and could touch 74.75.
The dollar index, which saw a sharp rally since the beginning of June, faced resistance at 92.40 before a couple of weeks, and since then, it has seen a decline. However, it found support at 91.55 and is now trading around 92-level. Looking at the daily chart, Tuesday’s candle shows some positivity, and thus, the index could resume its upward journey, which can weigh on the rupee. Whatsoever, dollar movement should be closely monitored.
Outlook
The rupee is currently charting a horizontal trend, and unless either 74 or 74.35 is breached, the next swing in the exchange rate will remain unclear. Above 74, INR can appreciate to 73.60 whereas, below 74.35, it can drop to 74.75.
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