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The rupee (INR), which has been one of the weakest Asian currencies in the last one month, remained stable against the dollar (USD) over the past week. In fact, the domestic currency has been gradually appreciating over the past few sessions. It has also largely remained stable against other major currencies like euro and pound.
The currency market participants seem to be waiting for the announcements from the US Federal Reserve which can increase the volatility in the coming weeks. The Fed is set to announce its monetary policy on Wednesday. Market is expecting the Fed to increase the rates by 75 and even 100 basis points.
That said, the FPI (Foreign Portfolio Investors) outflows seem to have slowed down significantly in June. The net outflow in July stands at $314 million compared to $6.6 billion in June. So, there is less pressure on the rupee from the fund flows.
Although, on the charts, the bear trend has not been invalidated yet.
Chart
The rupee, after hitting a record low of 80.06 last Thursday, has recovered to the current level of 79.77. Even though there is room for appreciation from here, there is a trendline resistance at around 79.50. If this is breached, it will pave way for a rally towards 79. But if the resistance at 79.50 holds and if INR falls, it might retest the low of 80.06 in the coming week. But note that the news from the Fed can keep the currency pair volatile.
The dollar index (DXY), which witnessed a decline recently, seems to have stabilised. In the past few trading sessions, it has been moving in the range of 106 – 107.35. Incidentally, the DXY has a trendline support at 106 and the likelihood of a rally from here looks high. It might appreciate to 109 in the short-term.
Outlook
There has been some recovery in the rupee over the past few sessions. But the overall trend remains bearish and that means the recovery can be limited. However, we might witness heightened volatility in the USDINR currency pair because of the Fed monetary policy announcement and the US GDP data release on Thursday. As it stands the near-term outlook appears unclear.
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