The rupee (INR) depreciated by a marginal 4 paise on Tuesday and ended at 83.97 against the dollar (USD). Notably, the local currency lost 0.17 per cent in August and remained one of the weakest Asian currencies despite a correction in the dollar. The dollar index lost nearly 2.3 per cent last month. Even in September, the rupee seems to have opened on a weak note.

One of the key factors keeping the rupee under pressure is the latest growth number. A GDP growth rate of 6.7 per cent for the April-June quarter is lower compared to the previous quarter’s 7.8 per cent. Also, the Manufacturing PMI marginally slipped to 57.5 in August compared to 57.9 in the previous month.

That said, there have been healthy foreign inflows over the past week, which has helped the domestic currency stay afloat. According to the NSDL (National Securities Depository Ltd) data, the net FPI (Foreign Portfolio Investors) inflows over the past week stood at nearly $3.1 billion. A strong domestic equity market continues to support the rupee.

While the fundamental factors are seemingly balancing out each other, the chart also shows that the tug of war between the bulls and the bears goes on, effectively keeping the exchange rate of USDINR within a band.

Chart

The chart shows that the support at 84 is holding strong. At the same time, INR is struggling to move past the resistance at 83.80. As it stands, the likelihood for the rupee to trade within these levels are high.

In case the support at 84 is breached, the downswing can extend to 84.20 and possibly to 84.50. On the other hand, if INR manages to surpass the barrier at 83.80, it can rise to 83.60, a resistance. A rally past this level is less likely, at least in the short-term.

The dollar index (DXY) rebounded from the support at 100.5 last week. It is now trading at 101.80. However, the index has to reclaim the 103 level to establish an uptrend. Also, the support at 100.5 is strong. So, these factors point to a potential consolidation in DXY between 100.50 and 103 in the near term.

Outlook

Both fundamental and technical factors are suggesting a potential sideways movement in the USDINR pair. The key levels to watch out for are 84 and 83.80.