Weekly rupee view: Further recovery on the cards
It’s been a volatile week for the Indians rupee. As warned in this column last week, the rupee breached the 81.85-82.20 range on the downside, and fell sharply. The currency fell to as low as 82.75 last Friday. However, she has recovered quite well from there over the past two days. The rupee closed at 82.37 on Tuesday.
The sharp rise in US Treasury yields last week was the main factor that pushed the rupee down to 82.75. Treasury yields rose last week after the release of the US Federal Reserve’s June meeting minutes. The minutes showed that the central bank will continue to raise interest rates.
The rise in crude oil prices also affected the local currency. However, weakness in the US dollar index after the release of jobs data on Friday helped the rupee to recover. The dollar index has fallen sharply from around 103 on Friday to 101.75 now. As such, the movement in the dollar index will need to be watched closely as it affects the movement of the rupee.
Dollar look
The short-term outlook for the dollar index (101.75) is bearish. Resistance is at 102.30. The index could drop to 101-100.80 in a week or two.
101-100.80 is an important support area for the dollar index. A decisive break below 100.80 would be bearish from a long term perspective. This breakout could drag the index down to 100 and even lower in the coming months.
On the other hand, the rebound from the support area 101-100.80 will keep the broader sideways range intact. In this case, the indicator can rise to the levels of 102-103 and higher again.
In general, price action in the 101-100.80 support area will need to be watched closely.
rupee forecast
The near term outlook for the Indian Rupee is positive. A break above 82.50 is important from a short term perspective. The level of 82.50 will now act as a strong support for the rupee. As long as the rupee is trading below 82.50, the chances of it consolidating towards 82.10-82.00 this week are high. After that, the price action will need to be closely monitored.
If the rupee can breach 82, then it can increase strength towards 81.75 and 81.60. But the reversal from around 82 and the subsequent drop below 82.20 will put the currency under pressure again. In this case, the rupee could fall back to 82.50 and 82.70 again in the coming weeks. So price action in the 82.10-82.00 support area will need to be watched closely.