All eyes are on the Fed as it is set to announce its policy decision on Wednesday. The expectation is for a 50 basis point increase in the benchmark rate. This has largely been factored in by the market and have to be seen if it can impact the dollar (USD) and the rupee (INR). The Indian currency was down by one-fifth of a per cent on Tuesday in the offshore market and is trading at 76.67 versus Monday’s close of 76.52 in the spot market. The Indian markets were closed on Tuesday on account of a public holiday. With this, the year-to-date loss of INR against USD stands at 3.1 per cent.
That said, the rupee has been one of the best performing Asian currencies in the last month, and this can largely be due to possible intervention by the RBI. Notably, the foreign exchange reserves dropped by nearly $18 billion to $600 billion on April 22 compared to about $618 billion on March 25. However, the fundamentals remain weak, which might eventually pull down the local currency in the coming weeks. For instance, crude oil prices continue to be elevated, and the foreign portfolio investors persists in pulling out. In April, the net FPI outflows stood at nearly $3 billion, and for the calendar year, it was $18.8 billion.
One should watch the OPEC+ meet, which can impact the crude prices. The negative correlation between the rupee and oil means a fall in price is good for the domestic currency and vice-versa. Also, do not miss the US Non-Farm Payroll numbers set to be released later in the week on Friday.
Charts
Since the final week of April, the rupee has been tracing a horizontal trend, largely oscillating between 76.40 and 76.80. So, INR has to breach either of these levels for the near term to get some clarity. A break out of 76.40 can lift the rupee to 76.15, above which 76 is a strong resistance. On the other hand, a breach of 76.80 can drag it to 77. Since the overall trend is negative, the chances are high to see a break below 76.80 and a fall to 77 and possibly even to 77.20 quickly.
The dollar index (DXY) breached the resistance at 102.50, and it even went past the 103-mark last week. From here, the direction can be set by the outcome of the Fed meeting. The nearest resistance is at 103.60, whereas the nearest support is at 102.50. But note that the index is trading just below the multi-year high and so, the next leg of movement on either side can be quick.
Outlook
Technically, the charts show that the USDINR currency pair is trading flat, and fundamentally, this can be an action-packed week as some key events can have a significant impact on the exchange rate. So, participants are suggested to refrain from trading until a clear direction emerges.
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