The rupee (INR) weakened against the dollar (USD) over the past few sessions. On Tuesday, it ended at ₹83.82 against the greenback.

As the dollar stabilised, the Indian currency started to face downward pressure. Another factor has been appreciating Chinese yuan, which weighed on the prospects of the INR.

The recent downswing is despite strong foreign inflows. The net inflows over the past week stood at $3.7 billion, whereas for September it stood at $11.2 billion, a record monthly inflow.

Another factor that weighed on the local unit is the marginal widening of the current account deficit to $9.7 billion in Q1 FY25 versus $9.3 billion in the same period of last year.

Reports also suggest that the Reserve Bank of India (RBI) might have bought dollars to keep the exchange rate of USDINR stable.

Chart

According to the chart, the rupee fell after facing a barrier at 83.45. It is currently hovering around an important level of 83.80. A clear breach of this can drag INR to 84.

On the other hand, if the local currency recovers from the current level, it can face resistance at 83.60 and 83.45. That said, a break below 84 can lead to another leg of downtrend.

The dollar index (DXY), which has been in a downtrend, now appears to be stabilising. Over the past few sessions, it has been oscillating within 100.20 and 101.

As it stands, the chances are high for DXY to surpass 101. In such a case, it can rally to 101.85, a resistance. A breach of 101.85 can turn the near-term outlook bullish.

But if DXY slips below 100.20, it can witness a quick decline to 99.80, a potential support. Immediate support below 99.80 is at 98.

Outlook

At the moment, the rupee appears to be on the back foot. Especially considering that the likelihood of a recovery in the dollar is high. However, the downside can be limited to 84.