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The rupee (INR) was largely flat on Tuesday, ending at 82.8025 against the dollar (USD). However, over the past week, it has depreciated as the dollar strengthened. The local currency declined despite lower crude oil prices and strong capital inflows.
According to the NSDL (National Securities Depository Limited) data, the net FPI (Foreign Portfolio Investors) inflows over the past week stood at a little over $1 billion. Month-to-date, the net inflows is at $3.9 billion. Also, the Brent crude oil remains below an important level of $78 a barrel.
Despite the above, the weakening of the rupee, at least partially, can be attributed to the possible accumulation of the dollar by the Reserve Bank of India (RBI), as experts suggest. It is noteworthy that foreign reserves increased to about $600 billion as of May 12, marking an increase of nearly $3.6 billion over the preceding week.
Chart
The rupee slipped below the support at 82.30 as we had warned last week. It is currently hovering in the critical support area of 82.80-83.
While it is still too early to predict a bullish trend reversal for the rupee, there is a possibility of a minor appreciation in the domestic currency. It could potentially rise to 82.60 from its current level. Resistance above 82.60 is at 82.40. However, if the INR breaks below 83, we may witness a quick drop to 83.25/30.
The dollar index (DXY) rose and marked a high of 103.62 last week and is currently hovering around 103.40. The trend looks positive. If DXY surpasses the previous high of 103.62, it can rally to 105. In this case, the rupee might breach the support at 83.
On the other hand, if there is a corrective decline from the current level, DXY might dip to 102.70. If this happens, INR might see a temporary rise to 82.60.
Outlook
Of course, a strong dollar can weigh on the local currency. However, at present, the rupee is trading near a crucial support level of 83, against which it has rebounded several times since October last year. Therefore, there is a chance for the INR to see a corrective rally to 82.60 this week.
That being said, participants should not be overly optimistic. We recommend maintaining cautiously bullish stance on the rupee as long as it remains above the key support level at 83.
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