Currency call. Rupee stays in a narrow range

Even as the global currency markets turn jittery ahead of the US Presidential elections next week, the Indian rupee continues to remain stuck in the narrow range of 66.4-67 for the sixth consecutive week.

The rupee touched a low of 66.93 and recovered to a high of 66.67 before closing at 66.75 on Thursday. The currency is likely to remain in the 66.4-67 range until the US election results are out on Wednesday. The US Federal Reserve meeting this week turned out to be a non-event. The Fed left rates unchanged but kept the chances alive for a rate hike in December.

The dollar index witnessed a sharp sell-off in the past week. News on FBI’s fresh probe on Hillary Clinton’s new emails helped Donald Trump take a slender lead over Hillary Clinton in a poll last week. This triggered a strong sell-off in the dollar index. The index fell 2 per cent last week to around 97 from 99. It is currently trading at around 97.2.

A win for Donald Trump may not be positive for global markets, at least in the short term. Risky assets, such as equities and emerging market currencies may witness a strong sell-off in the short term and might stabilise subsequently.

On the other hand, a win for Hillary Clinton may halt the fall in the dollar index and can lead to a strong reversal. The global equity markets may also see a strong rally.

Whatever be the outcome of the election, the chart suggests that there is room left for the dollar index to fall to 96.5 or even 96. A reversal from 96.5 or 96 may then take the index higher to 98 and 99 levels once again.

As the rupee continues to remain in the 66.4-67 range, the outlook remains unchanged. A breakout on either side of 66.4 or 67 will decide the next trend for the currency.

If the rupee breaks above 66.4, it can rise to 66.3 initially. If it manages to break further above 66.3, it can strengthen to 66.

On the other hand, if the rupee falls below 67, it can test its next support at 67.2. A strong break below 67.2 may increase the pressure and drag it to 68 or even lower levels thereafter.

As is being reiterated over the past few weeks, the level of 66 is a key medium-term trend-deciding level. If the rupee fails to strengthen beyond 66, a subsequent reversal from there can keep the currency range-bound between 66 and 68 for some time.

But if the rupee breaks above 66, there is a strong likelihood of it strengthening to 65 thereafter.