Weekly rupee view: Rupee to weaken more

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The rupee has declined breaking below the crucial level of 83. The domestic currency fell to a low 83.07 and has recovered from there. It has closed at 82.95 on Monday in the onshore market. But, in the offshore market, the rupee is continuing to trade weak on Tuesday. It tumbled to a new low of 83.42 and is currently trading at 82.28.

The Indian currency markets are closed on Tuesday and Wednesday on account of public holidays. As such the chances are high for the rupee to open with a wide gap-down on Thursday when the market reopens.

Dollar outlook

A strong rise in the US Treasury yields in the last week has kept the dollar index (102.99) strong. The Treasury yields have room to move further up in the coming days. That can continue to push the dollar index also higher going forward.

The dollar index has room to rise and test 103.50-104 in the near-term. The region around 104 is a very important resistance. As such the price action around 104 will need a close watch. A break above 104 can take the index further up to 105 and 106 in the coming weeks. Such a rise will be very negative for the Indian rupee.

On the other hand, if the dollar index reverses lower from around 104, it can fall back to 103 and 102 again.

Rupee outlook

Last week in this column we said that the rupee can decline towards 83 and then we have to watch the price action.  Although the rupee has recovered from the low of 83.07 and closed above 83 in the onshore market, the movement in the offshore segment on Wednesday indicates that more weakness is on the cards for the rupee going forward.

On the charts, 82.80-82.70 and 82.50 are important resistances for the rupee. The chances are high for the rupee to sustain below 82.70 itself going forward. The downside is open to test 84 and even 84.50 in the coming weeks. As the domestic currency will enter the uncharted territory, there is no significant support available to halt the fall. As such, the fall to 84-84.50 mentioned above could happen more swiftly, unless the central bank intervenes in between.