The rupee has been range-bound between 66.43 and 67 since the beginning of this month. The currency fell to a record two-year-low of 67.01 on Friday. The recovery thereafter was short-lived as the rupee lost momentum again after recording a high of 66.5650 on Monday. It finally closed at 66.84 on Wednesday, down 0.35 per cent for the week.
Global markets are turning jittery as the US Federal Reserve meeting next week draws closer. Crude oil prices fell to their lowest levels since 2009 after the Organisation of the Petroleum Exporting Countries (OPEC) decided to keep its output at around 31.5 million barrels per day as against market expectations of a cut in production. This has also added more pressure. There is a high degree of risk aversion in the market, which is keeping the rupee pressured and negating the positive effects of the fall in crude oil prices. However, lower oil prices will be good for the rupee in the long term.
The currency unit is now likely to move in tandem with the global developments ahead of the US Federal Reserve meeting on December 15 and 16.
Hence, the domestic macro economic data releases, such as the Index of Industrial Production (IIP) on Friday and the Wholesale and Consumer Price Index (WPI and CPI) inflation numbers on Monday may not have a major impact on rupee movement in the near term.
The outflow from Foreign Portfolio Investors (FPIs) seems to have gathered momentum in the past three weeks, especially in the equity segment. FPIs have sold $485 million in debt and $1 billion in equity over this period. They have turned net sellers after buying $2.4 billion in debt and $1 billion in equity in October. Since then they have sold $788 million in the debt segment and $1.77 billion in the equity segment.
The outlook for both the Sensex and the Nifty 50 are bearish and they look vulnerable to further falls. It suggests that more FPI outflow could be on the cards. This could keep the rupee under pressure, especially if the FPI sell-off intensifies in the debt segment too.
Rupee outlookThough, Wednesday’s candlestick pattern on the daily chart reflects the indecisiveness in the market, the price action since Monday suggests that the rupee is witnessing strong selling pressure in the 66.50-66.70 zone. The immediate reversal from near 66.50 leaves open the probability of a downward break from the current sideways range. Such a fall can drag the rupee lower to 67.3 and 67.5 in the short term.
On the other hand, if the rupee manages to reverse higher from 67 once again, the currency might continue to trade range-bound for some more time. However, the short-term outlook will turn positive only if it decisively breaks above 66.50. Such a break can take the rupee higher to 66.30 and 66 in the short term. But this upmove in the short term looks less probable.
The expected fall below 67 mentioned above will also keep the medium-term bearish outlook intact for the rupee for a revisit of 68 levels. The reversal from the high of 66.43 recorded on December 1 confirms the head and shoulder reversal pattern on the daily chart. The neckline level of this pattern is near 66.45. The target of this reversal pattern is 68.35, which is more likely to be targeted in the coming weeks on a strong fall below 67.