Weekly rupee view: Rupee likely to see more weakness

The Indian rupee continues to trade under pressure. The domestic currency fell below the psychological 85 mark in the past week. It declined to a new low of 85.21 on Tuesday and has closed at 85.20

The trigger for the fall in rupee came from the US Federal Reserve meeting last week on Wednesday. The central bank cut its policy rates by 25-basis points (bps) in line with the market expectation. The US Federal Funds Rate (FFR) range now stands at 4.25-4.50 per cent. However, the surprise for the markets came from its economic projections.

The Fed has now kept the doors open for a total of only 50-bps rate cut in 2025. In September, the central bank has projected a 100-bps rate cut next year. In addition to this the Fed has also revised the inflation outlook for 2025 higher.

This projection showing a slowdown in the future rate cut path and higher inflation took the dollar index sharply higher. That, in turn, has dragged the rupee lower.

Strong dollar

The dollar index touched a high of 108.50 last week and has come down from there. It is currently trading at 108.20. The broader picture is bullish for the index. Strong support is in the 107.50-107 region. The dollar index can rise to 110 in the coming weeks.

The index has to fall below 107 to turn the short-term outlook bearish. Only then will a fall to 106-105 come into the picture. But that looks less likely as seen from the charts.

More weakness

The break below 85 is a negative for the Indian rupee. The trend is down and strong. The rupee can fall to 85.30 in the near term. This level of 85.30 is an immediate support. If that holds, rupee can see a recovery towards 85.20-85.10. However, the chances of a rise above 85 is less likely now. To break 85 and see a rise, a strong trigger might be needed.

Eventually, the rupee is likely to break 85.30 and fall to 85.50 and even lower in the coming weeks.