The rupee (INR) fell to a lifetime low of 84.1450 versus the dollar (USD) on Monday in the off-shore market. However, it recovered from there and closed at 83.96 on Tuesday. Not just the dollar, the Indian currency also slipped against the euro (EUR) early this week and has been facing considerable downward pressure against the Japanese yen (JPY) for nearly a month.
The sell-off on Monday was triggered by US employment data, as new job additions fell short of expectations and the unemployment rate rose to 4.3 per cent. This fuelled concerns about the US economy slipping into a recession. Consequently, investors chased safety, weighing on the rupee and, also, the domestic stock market.
The rupee, by falling nearly 0.3 per cent against USD so far in August, remains one of the weakest Asian currencies. The domestic equity barometer, Nifty 50, has fallen 2.8 per cent in the first two sessions of the week.
With respect to JPY, INR has depreciated over 11 per cent over the past month as the yen rose sharply due to unwinding to carry trades, triggered partially by an increase in interest rates by the Bank of Japan last week.
The USDINR chart shows a clear breach of support by the Indian currency.
Chart
The rupee broke below support at 83.80 on Monday and marked a low (in the off-shore market) of 84.15. It has now retraced back below the 84-mark by closing at 83.96. However, the chart hints that the recovery can be restricted to 83.80, which henceforth will act as a resistance.
If the decline resumes from here, INR can decline to 84.30 in the short-term. But if it manages to get past 83.80, it can touch 83.60, another notable barrier.
The dollar index (DXY) broke below support at 103.50 last week. Following this, it marked a low of 102.16 on Monday, before recovering to the current level of 103.15. If this upswing can lift DXY beyond 103.50, we could see a rise to 104 or 104.50.
On the other hand, if DXY declines and falls below 102.50 again, the downtrend can extend to 101.
Outlook
While there is a chance for the rupee to stay in a range, possibly between 83.80 and 84.15, in the near-term, given the downward momentum, INR can begin a decline to 84.30 anytime.