The rupee seems to be more influenced by oil prices compared to the US dollar index. The currency continued to strengthen against the greenback last week in spite of a sharp rally in the dollar index. The sharp fall in oil prices helped the rupee retain its strength.
The US dollar index surged after the outcome of the US Fed meeting that left rates unchanged on Thursday last week.
The dollar index surged from around 96 to test 97 last week. But crude oil prices extending its fall for the fifth consecutive week helped the rupee remain insulated from the strong dollar. WTI crude oil prices tumbled about 6 per cent to make a low of $59.3 per barrel last week.
Limited strength
But the strength in the rupee is likely to be capped in the coming days as oil prices bounced higher on Monday.
WTI crude climbed about a per cent on Monday following Saudi Arabia announcing that it will cut supply next month.
On the charts, the region between $59 and $58 is a key support for the WTI oil. If prices manage to sustain above this support zone, there is a strong likelihood of prices moving higher towards $65 and $67 in the coming weeks
This, coupled with a strong dollar, may cap the upside in the rupee, going forward.
The dollar index has risen, breaking above a crucial resistance level of 97.15. The outlook for the index is bullish. It can move further higher to test 98 in the coming days.
Rupee outlook
The rupee reversed lower after making a high of 72.49 on Friday. The currency fell to a low of 73.07 before closing at 72.89 on Monday.
The rupee faces a key resistance at 72.40 and support at 73.20. A range-bound move between 72.4 and 73.2 is possible in the near term. A breakout on either side of 72.4 or 73.2 will determine the direction of the next move of the domestic currency.
A strong break below 73.2 can drag the rupee initially lower to 73.5. A further break below 73.5 will then increase the likelihood of the fall extending to 73.7 thereafter.
On the other hand, if the rupee manages to sustain above 73.2, the bias will continue to remain positive. It will keep the possibility high of the currency breaking above 72.4 in the coming days. Such a break will see the rupee strengthening towards 72 against the dollar in the coming days.