The rupee (INR) lost 0.2 per cent on Tuesday to end at 83.20 versus the dollar (USD). But over the past week, the exchange rate of USD-INR has largely remained stable, despite the greenback strengthening further and foreign fund outflows.
Last week, the net outflows of Foreign Portfolio Investors, according to National Securities Depository Limited, was $340 million, and in the corresponding period, the dollar index (DXY) appreciated 1 per cent. In fact, the dollar index has been rallying steadily since mid-July.
According to market reports, the negative impact of the strong dollar on the rupee was mitigated by the potential selling of dollar by the RBI. Coincidentally, the foreign exchange reserves held by the RBI has dropped to a fourth month low of $590.7 billion.
Technically, although the bias is bearish, there is a support for the rupee at 83.30 which, until now, has held well
The rupee is banking on the support at 83.30, and has successfully avoided a fall until now. But there has been a consistent downward pressure, as indicated by the price action on the chart. So, eventually, sooner or later, the support at 83.30 could fail to hold and this can lead to a fall in INR to the subsequent support levels at 83.80 and 84.
On the other hand, if the Indian currency can recover, it is likely to face a strong barrier between 83 and 82.85. That said, a strong breach of the resistance at 82.85 can remove the pressure on the rupee and, consequently, it could extend the upside to 82.50, a considerable hurdle.
What is crucial is the dollar movement. If DXY continues to move up, it can only add to the downward pressure that the rupee is now facing. Currently trading at around 107, the dollar index has a potential to extend the upswing to 108. If this happens, probably the support at 83.30 for the rupee might give up, paving way for more depreciation.
As it stands, the rupee continues to exhibit bearish inclination. If the local currency gets the support from the RBI, it might stay flat in the coming week. But if the dollar index march towards 108, the support at 83.30 can be breached, leading to a fall to 83.80/84.