CURRENCY CALL. Rupee gets a boost from weak US job numbers

Contrary to expectations of a fall, the rupee strengthened, breaking above the psychological 67 mark in the past week.

The trigger for the rupee to strengthen came from the US job numbers released on Friday. The US non-farm payroll for May increased by 38,000, much lower than the market expectation of an addition of 160,000 jobs.

This was the lowest in the last six years. The dollar index tanked after this data was released, from around 95.5 to about 94 as hopes of a rate hike either this month or in July dwindled.

The US Federal Reserve Chair, Janet Yellen, raising concerns about the recent job numbers in her speech on Monday put more pressure on the dollar.

The sharp fall in the dollar index helped the rupee to break above the important support at 67 last week. The currency strengthened to 66.62 on Wednesday before closing at 66.65 — up 1.2 per cent for the week.

The coming week is packed with a series of important data releases on the domestic front and also some key events on the global front.

The Index of Industrial Production (IIP) is due on Friday. It will be followed by the Consumer Price Index (CPI) and the Wholesale Price Index (WPI) inflation numbers in the beginning of next week. India’s trade numbers are also expected to be released in the coming week. The much-awaited US Federal Reserve meeting is due next Wednesday. While the weak job numbers have reduced the chances of a rate hike this month, Janet Yellen’s statement in the press conference will be keenly watched for cues on the next rate hike.

The near-term outlook for the dollar index (93.6) remains negative. Resistance is at 94. Ahead of the US Federal Reserve meeting next week, a fall to 93 or even 92.5 looks likely. The downside pressure will ease only if the index manages to decisively rise above 94. In such a scenario, a rise to 95 is possible. But such a strong rise looks less probable at this juncture.

The break above 67 has turned the near-term outlook bullish for the rupee. The currency is poised at the 200-day moving average resistance level. If it manages to surpass this hurdle in the coming sessions, then the rupee can strengthen to 66.50. Further break above 66.50 will see the currency rise to 66 in the short term. The level of 66 is a crucial resistance.

Inability to break above 66 and a subsequent reversal thereafter may increase the chances of a fall once again to 67. In such a scenario, the currency can remain range-bound between 66 and 67.5 for some time. It will also keep alive the chances of the rupee falling to 68 and 69 levels over the medium to long term.

On the other hand, if the rupee manages to surpass the crucial resistance at 66, it can strengthen further to 65.5 or even 65 thereafter.