Technical Analysis

Weekly view: Rupee can remain under pressure

Akhil Nallamuthu BL Research Bureau | Updated on April 22, 2021

Breach of 75.50 level can result in the local currency weakening towards 76 in the next one week

The dollar (USD) has been going downhill since the beginning of April and it continued the decline last week. This led to major Asian currencies gaining against the greenback. However, the rupee (INR) lost ground against the dollar and remained one of the worst performing Asian currencies over the past week. Year-to-date loss now stands at around 3 per cent. India witnessing record number of new coronavirus cases, liquidity measures by the Reserve Bank of India (RBI), tightening inflation and foreign flows turning negative contributed to the decline.

FPI pulling out

The total net investments by the foreign portfolio investors (FPI) this year is now at ₹50,815 crore, which is ₹2,589 crore lower than a week ago. That is, the FPIs have been selling over the past week. Majority of those sell-off has happened in the equity segment as the net outflow over the past week is ₹5,693 crore and the net inflow for the year now stands at ₹48,701 crore. However, the debt segment managed to attract funds as there has been as a net inflow of ₹3,727 crore during the corresponding period. As a result the net outflow in debt for the year improved to ₹13,122 crore from ₹16,849 crore. Nevertheless, the overall FPI activity in the last week looks bearish and this weighed on the Indian currency. As the market is struggling to sustain rallies, more FPI selling can be expected which can add further downward pressure on the rupee.

Crude inventories up

On the back of renewed demand concerns as the pandemic is looking worse, the price of crude oil has started to feel the heat. Adding to it, the US crude oil inventory data released last session by the Energy Information Administration (EIA) shows that the inventories went up by 0.6 million barrels against the expected drop by 3.7 million barrels. The price reacted negatively and going forward it could be see more decline. Since there is an inverse correlation between the rupee and crude oil, drop in price is a positive factor for the rupee.

INR-USD chart

Towards the end of the last week, the domestic currency appreciated considerably. However, it could not gain beyond 74.50 and reversed the direction abruptly. Following this, there was a sharp drop in price wherein the exchange rate touched 75.50. Since this level is a support, it can give the rupee bulls some hope for a recovery. In fact, in today’s session, INR has opened with a gap-up and is now trading around 75.15. The daily chart shows that 74.50 and 75.50 are the key levels and a break of either of these levels can give us the clue on the next leg of trend.

Outlook

While the rupee has a strong support at 75.50, as indicated by the chart, there are unfavourable factors like an uptick in inflation, surging new coronavirus cases etc. So, even though the rupee appreciates, it can be limited and 75.50 is a key level to watch. A breach of this base can result in the rupee weakening towards 76 in the next one week.

Published on April 22, 2021

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