The rupee (INR) made some progress versus the dollar (USD) over the past week – it ended at 82.77 on Tuesday, compared to 82.90 a week ago. Two main factors helped the Indian currency gain ground against the greenback: steady foreign inflows and depreciation in the dollar.

The net FPI (Foreign Portfolio Investors) inflows over the past week stood at $3.4 billion, according to NSDL (National Securities Depository Limited) data. Additionally, net inflows recorded until Tuesday in March amounted to $4.2 billion.

Apart from the above, the dollar index fell nearly 1 per cent over the past week. Thus, the INR managed to advance in the past few sessions. This has led to the local currency moving above a key level on the chart, indicating a positive sign. Below is an analysis.

Chart

The rupee surpassed the resistance at 82.80 last Thursday and has been able to sustain this level, increasing the probability of a rally.

While there could be a minor dip to the 82.85-82.90 level, we expect the rupee to eventually appreciate to 82.50, a resistance, in the near-term. Subsequent resistance is at 82.20.

In case the rupee sees a fall below 82.90, it is likely to be arrested by the next strong support at 83. As long as 83 holds, the bias will be positive for the domestic unit.

The dollar index (DXY) has slipped below the support at 103 and now looks to extend the decline further. DXY is currently trading below both the 20- and 50-day moving averages, adding to the bearishness. It is expected to fall to 101.80 or even to 100.50 in the short run.

Outlook

Weakness in the dollar is positive for the rupee. Additionally, if FPI inflows continue, they can further boost the INR. That said, there is a good chance for the INR to see a gradual upswing rather than a sharp rally in the near-term.

A bullish reversal in the dollar and a shift in capital flows pose a downside risk for the Indian currency.

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