Weekly Rupee View: Rupee could trade in a range 

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The rupee (INR) hit a record low of 87.29 versus the dollar (USD) on Monday. However, the domestic currency managed to recover a bit and closed at 87.08 on Tuesday. The risk-off sentiment went up as the new tariff announced by Trump on Canada and Mexico was supposed to come into effect on February 4. This led to a rise in dollar weighing on the rupee. 

But as Trump has now agreed to pause tariffs for a month, the Indian currency got a breather, recovering a little. 

In addition, an increase in long-term capital gain in debt instruments for foreign portfolio investors (FPIs) from 10 per cent to 12.5 per cent had an effect on the rupee. 

The sell-off by FPIs in the equity market seemed to have slowed. In fact, so far in February, the net flows are a positive $1.1 billion after witnessing a net outflow of nearly $11 billion last month, according to National Securities Depository Ltd (NSDL) data.

A falling crude oil prices is also good news for the domestic currency. The Brent crude futures has lost nearly 6 per cent in the past three weeks. 

Nevertheless, as per the chart, the trend remains bearish for the Indian currency. So, any recovery can be limited. Below is an analysis. 

Chart 

The rupee began the current week with a gap-down at 87.03 on Monday versus Friday’s close of 86.62. INR dropped further to hit a record low of 87.29 on Monday before recovering to 87.08 on Tuesday. 

The bias will remain bearish so long as the rupee stays below 87. In case INR recovers above this, it will face a barrier at 86.65, a strong resistance. Only a breakout of this can turn the near-term outlook positive. 

For that to happen, the dollar index (DXY), currently hovering around 108.60, should slip below the support levels at 108 and 107. A breach of 107 can turn the outlook bearish for DXY. In such a case, it can drop to 105.60. 

Outlook 

Over the next week, there is a good chance for the rupee to remain within the 86.80-87.25 range.