Weekly Rupee View: Slight gains expected within range

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The rupee (INR) has weakened against the dollar (USD) over the past week. It closed at 83.59 on Tuesday. The local currency lost ground against the greenback despite good fundamentals and a fall in the dollar index.

The domestic market sentiment is bullish, which is reflected in the equity market hitting new highs. Also, the capital inflows have been good. As per the NSDL (National Securities Depository Limited) data, the net FPI (Foreign Portfolio Investors) inflows over the past week stood at nearly $1.4 billion. So farz, in July, the net inflow has been at $3.5 billion.

On the other hand, lower-than-expected inflation in the US weighed on the dollar as rate cut hopes increased.

However, the rupee depreciated against the dollar. The increase in the trade deficit can offer some explanation. The trade deficit for June widened to $20.98 compared to $19.19 in the same month of last year. Also, there have been reports of dollar demand from importers.

Nevertheless, the rupee has remained largely steady, oscillating within a band for several months. Thus, the charts do not indicate a trend in either direction.

Chart

The rupee closed at 83.59 on Tuesday, testing the lower end of the price band of 83-83.60, within which it has been trading for several months.

If the rupee slips below the support at 83.60, it can quickly fall to 83.80, a potential support. Below this, the notable support is at 84. On the other hand, if INR rebounds on the back of this base, it can gradually move to 83 in the short term.

The dollar index (DXY) has declined  for about three weeks. But now it is trading near support at 104. If the index bounces off this level, it can appreciate to 105, a resistance level. A breach of this can lift it to 106. But if DXY breaks below 104, we can witness another leg of fall, possibly to 102.70.

Outlook

The fundamental factors favour the rupee, and the chart shows that it is now hovering around support. Therefore, there is a good chance that the Indian currency will see an uptick, probably to 83.