The Indian rupee breached the psychological 61 per dollar barrier last week and closed on a strong note on Thursday. The currency was trading weak initially and fell from 61.02 on Monday to 61.29 on Thursday. However, the currency gained momentum in the final trading sessions to close 0.62 per cent higher at 60.77.

The sharp fall in Brent crude prices to $102/barrel on Thursday aided this reversal. But crude prices reversed higher on Friday following the news that Ukraine attacked a Russian armoured convoy. This could prevent the rupee from rising. With no major data releases scheduled this week, the Russia-Ukraine conflict and crude oil prices will be the key drivers of the currency.

Economic data releases in the past week were weak. The index of industrial production for June fell to 3.4 per cent from 5 per cent in May. On the other hand, consumer price index (CPI) inflation rose to 7.96 per cent in July from 7.31 per cent in June. And although wholesale price index inflation fell to 5.19 per cent in July from 5.43 per cent in June, the higher CPI will prevent a rate cut. Foreign portfolio investor (FPI) participation in the market was limited in the short trading week. They sold $51 million in debt and $172 million in equity.

Dollar index

The dollar index (81.42) faced resistance near 81.7 for the second consecutive week. Inability to breach 81.7 could force the index lower to 81.1 in the coming days. On the other hand, the outlook will turn more bullish on a breach of 81.7. The ensuing target on such a break will be 82.5.

Dollar-rupee outlook

As mentioned last week, the reversal from the August 8 low of 61.73 is technically very significant for the rupee. Coupled with the strong close above 61 last week, this adds further strength. The probability is now high for the rupee to strengthen further to 60.55 and 60.45, which are key resistances for the currency.

A reversal from 60.45 will reinforce the danger of a fall to 61.30. On the other hand, a breach of 60.45 could see the rupee strengthen to 60. In the medium-term, the psychological level of 60 is a key resistance for the rupee. Inability to cross this hurdle will leave the medium-term outlook bearish and it is probable that the rupee will fall to 62.5. On the other hand, the outlook will turn bullish on a break of 60, in which case the rupee could strengthen to 59 in the medium-term.

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