The rupee (INR) lost 0.5 per cent against the dollar (USD) over the past week as it ended at 85.61 On Tuesday. For 2024, it has depreciated nearly 3 per cent versus the greenback.

Recently, the strengthening of the US dollar and the rising US Treasury yields due to the Trump effect has weighed considerably on the domestic currency. In the final quarter alone, the dollar index has appreciated over 7 per cent. In this period, the US 10-year yields shot up from about 3.6 per cent to 4.5 per cent.

In the local market, the net buying of Foreign Portfolio Investors (FPIs) stood at over $3 billion in December. But over the past week, their net selling stood at $724 million

There are uncertainties like how closely Trump will walk the talk, geopolitical concerns, strengthening dollar, slowing domestic economy etc. which can weigh further on the local currency. The chart, too, hints at further depreciation, but potentially at a slower rate in the near-term, that too post a minor up move.

Chart

The rupee, after marking a low of 85.81 towards the end of last week, recovered a little and closed at 85.61 on Tuesday. It remains below the support at 85.50.

That said, there is a chance for INR to see a minor recovery from the current level, probably to 85–85.20 price band. But then, it can resume the downtrend and is likely to retest 85.80. The downswing could extend to 86.

But if INR can surpass 85, it can get rid of the selling pressure, at least temporarily, which can pave the way for the recovery to extend to 84.25. Yet, a move above 85 is less likely. That leaves the possibility of a sideways movement between 85 and 86 over the next few weeks high.

The dollar index (DXY) is currently hovering around 108. The chart shows that the intensity of the rally has softened but not negated. So long as the support at 105.50 holds true, the inclination will be bullish. This is a risk for the rupee.

Outlook

The bear trend in the rupee is intact. Nevertheless, there might be a minor appreciation, possibly to 85–85.20 before the next leg of fall, which can drag it to 86.

Published on December 31, 2024