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The Indian rupee continued to strengthen for the second consecutive week, within the 64-65 range. The currency fell initially to a low of 64.59 last Tuesday but recovered to a high of 64.33 before closing at 64.35 on Monday.
A weak dollar helped the rupee to stay strong in the past week. The dollar index, which was falling at a slow pace in the initial part of the week, was beaten down on Friday.
The weak US Consumer Price Index (CPI) and retail sales data, which were released on Friday, dragged the dollar index lower towards 95. Weak inflation numbers have increased the speculation in the market that the US Federal Reserve would go slow in hiking interest rates.
The dollar index has recovered slightly from Friday’s fall and is currently trading near 95.25. However, a key resistance is at 95.50, which can cap the upside in the near term.
A downward reversal from 95.5 will increase the likelihood of the index falling below 95 in the coming days. Such a break can take the index lower to 94.7 initially.
Inability to reverse higher from 94.7 can drag the dollar index to 94 or even lower in the coming days. The rupee can strengthen further if the dollar index declines below 94.7. On the other hand, if the dollar index manages to reverse higher from 94.7, it can rise to 95.5 levels once again.
Rupee outlookThe near-term view is positive for the rupee. The currency can strengthen to 64.20 or 64.15 in the coming days. Resistance is in this 64.20-64.15 region. Inability to breach this hurdle can see the rupee reversing lower to 64.40 or 64.50 thereafter.
On the other hand, if the rupee manages to breach above 64.15, it can gain further strength to revisit the crucial resistance level of 64.
Whether the rupee breaks above 64 or not will then decide the next move. If it breaks above 64, it can strengthen to 63.85 or 63.60 thereafter. This move could be swift as the currency has been stuck in a sideways range between 64 and 65 for a prolonged period since April.
But if the rupee fails to break above 64 and reverses lower again, it will keep the sideways range intact and take the currency lower to 64.5 and 65 thereafter.
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