The rupee (INR) has been decling against the dollar (USD) since the beginning of September after facing a strong resistance around 72.90. It quickly fell below 73 and slipped below 74 last week and is now moving around 74.55. The year-to-date loss currently stands at a little over 2 per cent. Looking at the price action, the local currency can weaken further.

Positive FPI flows

On the fundamental side, the rupee has been a beneficiary of the strong foreign portfolio investor (FPI) inflows. The National Securities Depository Limited (NSDL) data shows that the net FPI investments stood at ₹27,756 crore and in October so far the net inflows stands at ₹1,125 crore. Out of this, the equity segment continues to attract majority of the inflows with net inflows of ₹2,835 crore. Whereas debt segment, which saw positive flows in September, has seen net outflows this month to the tune of ₹1,675 crore. This could also be keeping the rupee under pressure.

Technical

The downtrend, which has been in place for a month, seems to be slowing down as the domestic unit has support at 74.70. However, INR will retain the bearish bias until it stays below the key support at 74 and any uptick can face selling pressure.

Besides, the dollar index is trading with a bullish bias; despite a minor correction over the past few trading sessions, it remains above important support at 93.70. Currently trading above 94, it is likely to gain further from here. This means, the rupee can come under pressure on the back of the overall dollar strength.

Outlook

While the FPI inflows can support the rupee, the strength in the dollar can weigh on it, and the net effect could marginally be in favour of the greenback. Currently trading at 74.55, INR may appreciate to 74.40 and then could gradually decline, potentially reaching 74.85 in the near term.

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