The Indian equity market has turned nervous in the past week and has fallen about 4 per cent. But there is not much happening in the Indian currency market. The rupee continued to trade within the 66-67 range for the seventh consecutive week. It strengthened from 66.56 to 66.23 by Tuesday. But the currency lost momentum and gave back the gains to close at 66.56, down 0.15 per cent for the week.
The reversal in the rupee was triggered by the sharp bounce in the dollar index from its low near 92.
The dollar index is showing signs of a recovery after tumbling 3 per cent, following the Bank of Japan’s move to keep its stimulus unchanged on April 28. The US non-farm payroll and unemployment data due for release on Friday will be a key event to watch this week. This data will determine the next move in the dollar index.
The index could get some breather if it manages to sustain above 92. In such a scenario, the dollar index can rise to 94 in the coming days. A strong break above 94 will ease the downside pressure further and take it to 95 thereafter. Such a rally in the dollar index can see the rupee under pressure. It may also see the rupee breaking its current 66-67 range on the downside and fall below 67. But if the dollar index moves below the key support at 92 decisively, then a further fall to 91 is possible.
Rupee outlook There is no change in the outlook for the rupee as the currency is stuck between 66 and 67. Within the range, the possibility of a move to 66.7 and 67 — the upper end of the range in the near term — is possible.
However, a breakout on either side of 66-67 will decide the next trend for the currency. Since the rupee has been stuck in the range for several weeks, the next move on either side after the range breakout could be swift.
Inability to immediately break below 67 will see the rupee retaining this range for some more time. In such a scenario it can strengthen within the range to 66.5 and 66.2 in the near term.
But if the rupee breaks below 67 in the coming days, it can fall to 67.5 and 67.6 immediately. The break below 67 will also keep the medium-term bearish outlook intact. A fall to revisit 68 and 69 levels will then be possible.
On the other hand, if the rupee manages to break the current range above 66, it can strengthen to 65.5. The 65.5 level is a strong resistance and it is quite unlikely that the rupee will strengthen beyond this level.
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