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The rupee (INR) has largely been charting a sideways trend against the dollar (USD) over the past few sessions. It closed at 83.32 on Monday. The Indian currency markets were closed on Tuesday on account of a public holiday.
The Indian currency is getting some breather as the dollar lost its upward momentum recently. That said, despite the dollar index softening, the rupee remained flat, potentially due to rising crude oil prices. The Brent crude oil futures has rallied a little over 8 per cent since the end of February.
Rupee and the crude oil price holds an inverse relationship, as India is a big importer of oil, hardening crude oil prices. This can weigh on the local currency.
The foreign inflows could only partially offset the negative impact of the crude oil prices. According to the NSDL (National Securities Depository Limited) data, the net FPI (Foreign Portfolio Investors) inflows so far in April stood at $290 million.
Chart
Along the expected lines, the rupee continues to trade within a range. The chart shows that 83.25 and 83.55 are the boundaries. Only a breach of either of these levels can open up the possibility of the next leg of trend.
If INR breaks out of 83.25, it can potentially rally to 83, a considerable resistance. Subsequent resistance is at 82.80. On the other hand, if the rupee slips below 83.55, it can decline to 83.80 or even to 84.
The dollar index (DXY) fell off the resistance at 105 last week. It is currently trading at 104.20. The nearest support can be spotted at 103.60. A breach of this level can drag DXY to 102.70. A drop below this level is less likely.
In case DXY starts to recover and rallies past 105, it can go up to 106 or even to 106.80.
Outlook
As it stands, the likelihood of the 83.25-83.55 range remaining valid is high. But since the dollar might depreciate in the near-term, the rupee might rise above 83.25, possibly towards 83.10 or 83. That said, a sharp rally in crude oil prices or a recovery in the dollar can keep the rupee under pressure.
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