Near-term Outlook Mixed For Rupee

The Indian rupee remained stable in a narrow sideways range between 70.9 and 71.35 last week. Weakness in the US dollar index, coupled with a strong bounce in Indian equities, helped the rupee stabilise below 71.5 in the past week. Oil price rally losing pace towards the end of the week also gave a breather to the rupee. The currency closed at 70.98, up 0.53 per cent for the week.

Risk-off sentiment

US President Donald Trump’s tweet over the weekend, indicating that the March 1 deadline for a higher import tariffs on Chinese goods will be postponed, has made the market highly risk-averse. This, in turn, has been keeping the dollar index (96.45) subdued.

The index fell from around 97 to a low of 96.25 in the past week. There is a strong likelihood of the index testing 96 and 95.8 in the near term. A strong break below 95.8 will increase the possibility of the index extending its fall to 95.

Such a fall can limit the downside in the rupee and increase the possibility of the currency strengthening towards 70.5 against the dollar. The dollar index will gain strength only if it breaks above 97.3. The next target is 98.

The rally in oil prices seems to be losing steam. Brent crude oil prices have come down after making a high of $67.75 per barrel on Friday. It is currently trading at $67.1. Though the broader bullish outlook remains intact, there is a strong likelihood of prices dipping to $65.5 in the near term. A break below $65.5 can drag the prices even lower to $64.5 and $64. In such a scenario, pressure on the rupee may ease. However, as mentioned above, the broader outlook is still bullish for oil, and Brent is likely to test $70 in the coming weeks.

As such the upside in rupee could be capped in the coming days.

Rupee outlook

The near-term outlook is mixed for rupee. The currency can remain range-bound between 70.9 and 71.5 in the near term. Within this range the bias is positive. On the charts, the possibility is high for the rupee to break above 70.9 and strengthen towards 70.5 in the short term.

The weekly line chart indicates that as long as the rupee trades above 71.5, an up-move to even 70 cannot be ruled out.

The bullish view will get negated only if the rupee declines below 71.5 decisively. In such a scenario, the currency can fall to 71.8 and 72 levels thereafter.