Weekly Rupee View: Strong dollar could keep rupee in check

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The US debt ceiling impasse is keeping FX sentiment on the risk off side. This causes the dollar (USD) to perform well against other currencies. As a result, the rupee (INR) depreciated against the dollar over the past week, in line with our expectations.

However, lower crude oil prices and strong foreign inflows mitigated the decline in domestic unity. Brent crude is struggling to surpass $78 a barrel and the domestic market has received significant capital inflows.

According to NSDL (National Securities Depository Limited), FPI (Foreign Portfolio Investors) net inflows over the past week were around $1.4 billion.

So far this month, FPI’s net inflows stand at just over $3 billion. But note that the money flows in May were largely directed towards the equity sector. In fact, for the month, the debt segment saw minor net inflows of $175 million.

Schedule

The rupee has fallen in the past few sessions. However, support at 82.30 provides some relief, at least temporarily. On the back of this support, the INR rose 0.1 percent on Tuesday and closed at 82.2150. From the current level, resistance is at 82.

If the INR falls below 82.30, it could weaken to 82.70 or even to 83 in the near term. On the other hand, if it breaks 82, it can retest the key barrier at 81.60.

The Dollar Index (DXY) rose by the end of last week and closed above the barrier at 102.20. The pair is currently hovering around 102.40. DXY may regain its momentum and rise from here, possibly reaching 103.50 this week.

This can affect the local currency. But a drop below 102.20 could bring the dollar index back to 101, which is positive for the Indian rupee.

prospects

While the support at 82.30 is helping the rupee to stay afloat, the upside seems to be limited due to the strength of the dollar.

Therefore, the chances of the rupee remaining flat, i.e. between 82 and 82.30 this week, are high.

But since the dollar is showing some bullish inclination, we cannot completely dismiss the chance of the INR slipping below 82.30 and touching 82.70. Thus, 82.30 is the key level to pay attention to in the short term.