The rupee lost some momentum in the past week. The currency opened the weak at 66.96 and touched a high of 66.88 on Wednesday.
But it lost strength and fell to a low of 67.15 on Friday. However, the rupee managed to recover from this low to close at 66.92 on Monday. The coming week is a short trading week. The domestic currency market is closed today (Tuesday) on account of Mumbai Municipal Corporation Elections and also on Friday on account of Mahashivaratri.
Strong equity markets coupled with foreign portfolio investors’ interest turning towards the Indian debt segment have been aiding the rupee so far this month.
After a weak start this year, FPIs have bought $984 million in the debt and $1.65 billion in the equity segments so far in February. This has helped keep the rupee relatively stronger in spite of the dollar index strengthening over the last couple of weeks.
The dollar index (100.81) surged to a high of 101.76 and has come off from there. Inability to break above 101 decisively from current levels can keep the index range-bound between 99.5 and 101 for some time. On the other hand, strong break and decisive close above 101 may increase the likelihood of the index rising to 102 or even higher.
Rupee outlookThough the rupee has reversed lower in the past week, the pull-back move seems to lack strength. Key support to watch is in the 67.10-67.20 region. A strong break below 67.20 is needed for the rupee to come under pressure.
Such a break will turn the short-term outlook negative and drag the rupee lower to 68 and 68.3 levels once again.
But the price action on the charts suggests that the rupee is not witnessing fresh selling pressure below 67 at the moment. As such the possibility of the 67.10-67.20 support zone limiting the downside is high in the near term.
As long as the currency sustains below 67.20, there is a strong likelihood of the rupee strengthening to 66.55 initially. A further break above 66.55 can take it higher to 66.20 or even 66 thereafter. As mentioned last week, the rupee is broadly range-bound between 66 and 68.85 for more than a year now. Within this, the currency is strengthening towards the upper end of the range.
A reversal from 66 will keep the broad sideways range intact and see the rupee reversing lower to 66 and 68 levels once again over the medium term. The rupee will need a strong trigger to break this range above 66, which looks less probable at the moment.