Dollar (USD) dominance continues and the dollar index, the measure of dollar against a basket of major currencies, hit a two-decade high of 110.3 on Monday. However, the rupee (INR) managed to take the minimum blow and continues to defend the psychological 80 mark. According to market experts, the rupee is being supported from witnessing a sharp fall by the Reserve Bank of India (RBI) by selling dollars and buying rupee in the market.

The FPI (Foreign Portfolio Investors) inflows, which have been helping the rupee in the last two months, is now showing some slowdown. The net FPI inflows in september so far is at $95 million. Nevertheless, it can be too early to say that foreign flows have turned completely negative where it is going to drag on the local currency. That said, the chart shows a lack of trend and INR has been held in the range of 79.50 – 80 since the past three weeks.

Chart

The rupee, which made some recovery last week, could not extend the rally as we expected. Yet, it did not fall either. The domestic unit has kept the support at 80 and the resistance at 79.50 valid. Meaning, it is now fluctuating within a range. So, the next leg of trend can be confirmed only if it moves out on either side of this range.

A breakout of 79.50 can lift the rupee to 79 whereas if the support at 80 is breached, it can decline to 80.50 or even 81 quickly.

That said, the dollar can keep the rupee under pressure. As mentioned earlier, the dollar index rallied to touch a 20-year high of 110.3 on Monday. The price action is bullish, and it hints at further rally, potentially to the next key resistance band of 113.50 – 114.

Outlook

While the rupee is now consolidating, there are certain concerns for it viz, the strong dollar and the slowing FPI inflows. So, the rupee will continue to trade with a bearish bias. That means, even if it manages to stay above the critical 80-mark, it will eventually breach this level and depreciate to 81. But the more time the range of 79.50 – 80 holds, the more time it will take to touch 81.

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