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The Indian rupee (INR) extended its fall against the dollar (USD) to hit a fresh low of 79.38 on Tuesday. It depreciated by a little over half-a-per cent to end Tuesday’s session at 79.37. Year-to-date rupee’s loss versus the US dollar is now at 6.8 per cent. The dollar, after a pause, seems to have begun to rally again. Crude oil prices are also firm despite concerns about demand disruption induced by a possible recession.
The widening trade deficit and foreign capital outflows are also giving the Indian currency a tough time. A government release shows that the preliminary trade deficit in June stood at $25.63 billion, compared to $9.61 billion in June 2021. Notably, the deficit in April-June 2022-23 was recorded at $70.25 billion. According to the latest NSDL (National Securities Depository Limited) data, net FPI (Foreign Portfolio Investors) outflows in the first half of calendar year 2022 were at nearly $30 billion. In June, the net outflows stood at $6.6 billion.
Moreover, market sentiment is not encouraging as the possibility of a recession is keeping investors away from risky assets. This also means that dollar demand can rise further and this can put more downward pressure on the domestic unit.
The charts, too, indicate a strong bearish trend for the rupee.
Charts
Although there has been some consolidation in the past few sessions, INR fell on Tuesday to mark a new low of 79.38. Thus, the overall bear trend remains strong. Although 79.50 can offer some support, a fall to 80 is likely within a couple of weeks. But if there is a recovery from here, the rupee can face hurdles at 79.20 and 79.
The dollar index (DXY) bounced off the 21-day moving average last week and on Tuesday made a higher high by surpassing the prior peak of 105.8 made in mid-June. Currently trading at a little above 106.2, the chances for a further rally are high. The nearest resistance is seen at 108 and the next one at 110.
Outlook
Continued FPI outflows and risk-off sentiment in the market is weighing on the Indian currency. The charts also show bearish price action in the rupee. Given the current circumstances, INR is expected to hit the 80-mark within a week or two. Even if there is a recovery from here, it can be capped at 79 at least in the short-term.
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