The Indian rupee has been range-bound against the dollar, trading between 60.33 and 60.69 for the second consecutive week. It fell to a low of 60.69 on Tuesday and gained ground from there to record a high of 60.33 on Wednesday before closing at 60.41, up 0.18 per cent for the week.

Domestic indicators Macro economic data releases in the past week were mixed. The current account deficit narrowed sharply in the first quarter of the current financial year (2014-15) to $7.86 billion, or 1.7 per cent of GDP, from $21.79 billion a year ago.

Though this is good, the quarter-on-quarter comparison isn’t that rosy. The CAD has actually widened from $1.34 billion in the fourth quarter last year to $7.86 billion now.

Manufacturing activity, as measured by HSBC’s manufacturing Purchasing Managers’ Index (PMI), slowed in August, with the index dipping to 52.4 from 53 in July.

Similarly, the Services PMI fell to 50.6 in August from 52.2 in the previous month.

Looking at currency movers in the week ahead, trade data is due for release. So are industrial production numbers and the RBI’s much-watched consumer price inflation index, which are scheduled to come out on Friday.

Foreign Portfolio Investors (FPIs) continue to buy in the Indian market. They bought $828 million in debt and $656 million in equity in the past week. The total inflows into both the equity and debt segments in 2014 now stand at $31.48 billion. Though the strong FPI inflows have helped limit the fall in the Indian rupee, they have surprisingly not aided the currency in gaining strength, unlike the stock indices, which are hitting record highs every week.

Dollar index A surprise rate cut and a stimulus announcement by the European Central Bank (ECB) on Thursday triggered a sharp rally in the dollar index (83.76) last week.

The index was up 1.2 per cent last week. It has come off after recording a high of 83.97. Support is at 83 and some resistance is seen at 84 for the dollar index.

There is a possibility for the index to pause and consolidate between 83 and 84 for some time. However, the overall outlook for the index remains bullish since the euro, pound and the yen − major components of the index − are looking weak. This could see the index breaching its hurdle at 84. Such a break could take the index higher to 84.5.

Dollar-rupee outlook Two consecutive weeks of narrow sideways consolidation leaves the immediate outlook unclear for the rupee.

The currency could continue to trade within the 60.3-60.7 range for some time. A break on either side of this range will decide the short-term trend for the rupee.

A break above 60.3 could see the rupee strengthen to 60. On the other hand, a fall below 60.7 could drag it lower to 61.

The medium-term view remains unchanged. Key resistance is at 59, which could be tested on a break above the psychological level of 60. But a rally beyond 59 looks less probable at the moment. Having said this, a reversal from 59 could see the rupee weaken to 61 or 62 to the dollar levels.

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