The rupee, which was tottering on the brink of declining below the 64 mark against the US dollar, was rescued by a series of positive developments. The Reserve Bank of India extended the special swap window for banks to borrow overseas and allowed payment in rupees for some imports, thus easing the downward pressure. Decline in international crude prices following Iran’s deal to limit its nuclear capabilities also helped in yanking the rupee higher to 62.51 by Tuesday.
GDP data, due to be released this Friday, will be of interest to currency markets. Weak GDP data would add to the pressure created by high inflation data released earlier this month and will restrict the currency’s strengthening.
On the foreign institutional investors’ front, the equity market continues to attract inflows. However, the quantum of outflows in the debt segment in the past week was much lesser than in the earlier weeks. FIIs bought $302 million in equity and sold $86 million in debt in the past week.
DOLLAR INDEX
Over the last three weeks, the dollar index has been stuck between 80.5 and 81.5. The immediate outlook is not clear. A breakout on either side of 80.5-81.5 will decide the trend. A breach above 81.5 will be bullish and the index can target 82 immediately and 83 thereafter. On the other hand, decline below 80.5 can drag the index lower to 79.7.
DOLLAR-RUPEE OUTLOOK
The rupee could trade sideways between 61 and 64 in the short term with a bearish bias. The Indian currency has to surpass its immediate hurdle at 62 to strengthen further to 61 again. But inability to strengthen beyond 62 will keep the short-term outlook weak for the currency.
While below 62, the rupee can weaken to test its intermediate support at 63 or even 64 once again. However, 65 and 66 are key support levels which can limit the downside in the rupee for the medium term.