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The rupee (INR) is shackled in the range of 74.60 and 75 against the dollar (USD) over the past week. More so, it has been hovering around 74.75. On Tuesday, it closed 0.1 per cent lower at 74.7475. The local currency has managed to stay flat despite a rally in crude oil price and an increase in the US 10 year yield, which shot up to 1.93 per cent on Tuesday.
The trend in foreign flows too is unfavourable for the rupee. But INR stayed steady largely due to the dollar weakness; the greenback has been struggling against almost all major currencies of late.
The price of spot Brent crude oil is currently trading around $91.3 a barrel after hitting a high of $94.6 on Monday. In the week ahead, the Russia – Ukraine issue is likely to keep the oil price at elevated levels. But if the decline on Tuesday turns out to be a short-term downtrend rather than being a minor corrective movement, it can help the Indian currency inch up.
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But, INR remains one of the best performing Asian currencies: Fin Min to Rajya SabhaOn the other hand, considerable net FPI (Foreign Portfolio Investors) outflows have been witnessed. FPIs, whose net outflows stood at $3.8 billion in January, have already pulled out net $1.6 billion in the first week of this month, shows latest NSDL (National Securities Depository Limited) data. While there are few key factors which are now against the rupee, the charts have been flat of late.
Charts
The rupee, which fell towards the end of January, has been moving in a narrow range since the beginning of this month. The boundaries within which it has been fluctuating are 74.60 and 75. Therefore, technically, until either of these levels are breached, we cannot assume the next leg of trend. A breakout of 74.60 can result in INR appreciating to 74.30 whereas a break below 75 can drag it to 75.30, its nearest support.
The dollar index (DXY) which broke out of 97 a fortnight ago, could not sustain above that level and it immediately turned the direction downwards. Last week, it slipped below a key support at 95.65. So, the likelihood of DXY, which is currently trading around 95.60, declining to 94.70 in the coming week looks high. A breach of this level can drag the index to 93.80 and this can be a positive factor for the local unit.
Outlook
The short-term outlook for the rupee remains uncertain. On one hand, the charts shows that that the USDINR pair is currently moving in a tight range but on the other hand, there are several key outcomes this week including the Reserve Bank of India monetary policy and the US inflation data. These factors can induce above average volatility in the currency pair. Thus, market participants are advised to stay out of the market until a clear trend emerges.
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