The rupee was flat and it ended at 82.26 on Tuesday against the US dollar. Although in July, the Indian currency remained one of the weakest Asian units by losing 0.26 per cent. This was despite strong foreign inflows last month.
According to NSDL (National Securities Depository Limited) data, the net FPI (Foreign Portfolio Investors) inflows in July stood at $5.8 billion. Thus, the domestic market received over $5 billion for the last three months in a row.
While dollar gaining in the second half of last month contributed to the weakness in the rupee, there is also a good chance that the Reserve Bank of India (RBI) buying dollars could have dragged the domestic currency. Notably, the foreign exchange reserves increased from $595 billion on June 30 to $609 billion on July 21.
Besides, the crude oil prices have also been rallying in the recent weeks, possibly weighing on the local unit as crude oil and rupee are inversely related due to the high import dependence of the country.
The above fundamental factors apart, the chart shows that the rupee fell off a strong resistance level. Below is an analysis of the rupee chart.
Chart
The rupee faced a barrier at 81.65 and consequently, even though it went above a trendline resistance, it depreciated. Currently trading at 82.2575, there is a good support at 82.30. This support has been holding well over the past few days.
If rupee rises on the back of this, it can appreciate to 82 or even to 81.80. On the other hand, if the support at 82.30 is breached, INR could fall towards 82.85. Notably, the price range of 82.85-83 is a considerable support band.
The dollar index (DXY), after bouncing off the support at 99.60 in mid-July, has now moved above an important level at 101. Currently trading at 102.20, the price action hints at more on the upside, possibly to 103.60, a resistance. Subsequent resistance is at 104.50.
Outlook
The dollar appears strong and there is more room to rally. Therefore, the rupee might slip below the support at 82.30 and touch 82.50 or 82.85 in the near-term.