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The rupee remained largely flat against the dollar) over the past week. On Tuesday, rupee closed at 82.90 versus dollar . This is despite the good foreign inflows and a moderation in the greenback.
The NSDL (National Securities Depository Limited) data shows that the net FPI (Foreign Portfolio Investors) inflows over the last week stood about $1.1 billion. In February so far, it is nearly $3.5 billion. One factor that has weighed on the rupee is the rise in crude oil prices over the past few weeks.
Nevertheless, largely, the Indian currency has remained in a range against the dollar for nearly six months. Below is an analysis of the charts.
Chart
The rupee is now trading near the resistance band of 82.75-82.80. If this is breached, it is likely to get considerable positive impetus, which can take it to 82.50 and then to 82.20 quickly. Since the dollar index (DXY) has been falling off a resistance level, this is likely to happen.
That said, there is an important support for DXY at 103. A breach of this can result in the rupee crossing over 82.80. However, if the dollar index rebounds from this level, rupee might also weaken. In this case, how far the local currency can fall will depend on the magnitude of the rally in the dollar.
If DXY rallies back to 105, the rupee could fall to 83.20. In the event of the dollar index surpassing 105, rupee might be dragged to the critical support at 83.50. That said, a sharp fall might not happen in the rupee, given the strong domestic fundamentals and the potential central bank intervention.
Overall, the rupee possesses positive bias as it stands.
Outlook
The level of 82.75 is crucial for the Indian currency. While we expect rupee to test this level in the short-term, a breach of this will depend on the movement in the dollar. So, participants should keep a tab on how DXY reacts to its support at 103 which will be a strong clue on the next leg of movement in the rupee.
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