The rupee is stuck in the 66-67 range for the sixth consecutive week now. With no major domestic macroeconomic data release in the past week, the rupee was broadly influenced by the global movement in the US dollar. It touched a high of 66.38 before closing at 66.52 on Thursday.

The market was eagerly awaiting the outcome of the US Federal Reserve meet on Wednesday. But with no surprises and no hint on the timing of the next rate hike, this US Fed meet turned out to be a non-event. However, the real surprise for the global currency market came from Bank of Japan (BoJ) on Thursday. Market was widely expecting fresh stimulus announcement from the BoJ. But the central bank left both the interest rates and its stimulus unchanged.

This move took the dollar index below 94, which is a negative. A strong close below 94 would keep the index under pressure.

In such a scenario, the danger of a fall to 93 and 92.8 in the short term will increase. A weak dollar could aid in limiting the downside for the rupee. Key resistance for the dollar index is at 95. Only a strong break and a decisive close above this hurdle will ease the downside pressure on the index.

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) and Services PMI data are due for release on Monday (May 2) and Wednesday (May 4). Another major development that will take place this week is the change in RBI reference-rate setting methodology. As said in its April monetary policy statement, from May 2, the rupee reference rate against the other major currencies (Euro, Pound, Yen and US dollar) will be calculated based on actual market transaction on volume-weighted basis. At present, the reference rate is calculated from the quotes polled from a select list of banks.

Rupee outlook

The rupee is stuck in a sideways range between 66 and 67 for more than a month now. It is currently hovering at the midpoint of this range and has equal chance of moving on either side from current levels in the near term.

A breakout on either side of 66-67 will however, decide the next leg of the move for the rupee. Inability to immediately break above 66 can keep the currency within the same range for some more time. It will also leave open the chances of an eventual fall below 67.

Such a fall can take the rupee lower to 67.5 and 67.6 in the short term. The fall below 67 will also keep the medium-term bearish outlook intact for a revisit of the 68 and 69 levels.

On the other hand, if the rupee manages to break the current range and moves above 66, it can strengthen to 65.6 in the short term. The level of 65.6 is a strong resistance and an immediate break above this hurdle is less likely.

comment COMMENT NOW