The rupee (INR) was largely stable against the dollar (USD) over the past week. This was contrary to our expectation that the currency pair USDINR would witness heightened volatility on the back of data releases. Experts feel that the Reserve Bank of India (RBI) is in the market selling dollars, thereby supporting the domestic currency. On Tuesday, INR ended flat at 82.36 versus USD.
The local equity market has been rallying over the past couple of sessions. The dollar index (DXY) has moderated a bit, showing improvement in investors’ risk appetite. And then, the falling crude oil price relieves the Indian currency as it is inversely proportional to the energy commodity because of high import dependence.
If the risk-on sentiment prevails, we might see good foreign inflows, which are now negative for the month. As per the NSDL (National Securities Depository Limited) data, the net outflows in October so far stand at $1.2 billion. Markets embracing more risk means the dollar might also soften, leading to upward pressure on the rupee.
That said, the chart shows that the rupee has now stabilised between 82 and 82.50.
After getting out of the range of 81.30 – 82, the rupee seems to have formed another one between 82 and 82.50. A breach of either of these levels will lend us some clue on which direction the NR might be establishing the next leg of the trend.
DXY, currently trading at 112, has formed a lower low in the daily chart. While that is not necessarily an indication of a bearish reversal, it signifies a loss in bullish momentum. DXY has trendline support, which could meet around 111.50. A break below this level can make the near-term outlook weak; the dollar index could weaken to 110. This will open doors for the rupee to appreciate.
In such a case, we can expect INR to rally past 82 and possibly touch 81.75 and 81.30, notable resistance levels. But on the other hand, if it invalidates the support at 82.50, it could see a swift fall to 83. Potential support below 83 is at 83.50.
The sentiment seems to be favouring the local currency. Technically, the rupee is moving in a range, and we can observe some weakness in the price action of the dollar index. In the coming week, INR might trade with an upward bias where it could touch 81.75.