The domestic financial market received a boost from the much-awaited Union Budget this week.

The rupee had fallen to a low of 68.79 on Friday and was threatening to extend its fall further. However, the Finance Minister choosing to stay the course on fiscal consolidation — retaining the fiscal deficit target at 3.5 per cent for 2016-17— helped the rupee.

The rupee has strengthened from the low of 68.79 and breached the psychological 68 level to touch a high of 67.53 on Wednesday. The currency closed at 67.55 on Wednesday, up 1.5 per cent for the week.

But there are doubts on how the Centre will meet the fiscal deficit target and also boost exports at a time when the global slowdown is continuing to hurt other markets. Nonetheless, the rupee is likely to remain strong in the near term.

Watch the FPIs Foreign portfolio investors (FPIs) continue to remain net sellers in the Indian market.

They have sold over $800 million in debt and about $2.26 billion of Indian equities so far this year. In February, they had sold $1.2 billion in debt and $808 million in the equity segment.

FPI action post-Budget will need a close watch. If the FPIs continue to remain net sellers, then the strength in the rupee could wane.

The dollar index (98.45) is continuing to trade strong. It has resistance between 98.85 and 99.

A reversal from 99 can lead to a corrective fall to 98. However, a strong break above 99 can take the index higher to 99.5. Such a break will also pave the way for the index to revisit 100 levels.

At the moment, the rise in the dollar index is not impacting the strength in the rupee. But a rally above 99 in the dollar index might make the market risk averse and put pressure back on the rupee.

Rupee outlook The short-term outlook has turned positive for the rupee. Significant short-term supports are at 68 and 68.25. As long as the rupee trades above 68.25 there is no danger of any sharp fall in the short term.

So, the threat of the rupee falling to 70 has eased for the moment as the currency is expected to extend its rally to 67.50 and 67.35.

This level of 67.35 is an important near-term resistance. A reversal from here can see an intermediate fall to 68 once again.

On the other hand, if the rupee manages to surpass the resistance at 67.35, it can strengthen further to 67 or even 66.8 in the short term.

The recent reversal in the rupee from the low of 68.79 has happened from the medium-term channel support.

This has kept the rupee’s movement within the channel that has been in place since 2014.

The 100-day moving average resistance around 66.8 will be an important level to watch for now.

A strong break above this resistance will increase the chances of the rupee strengthening to 66 — the channel resistance over the medium term.

Related Topics