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The US debt ceiling stalemate is keeping the currency market sentiment on the risk-off side. This is leading to the dollar (USD) performing well against other currencies. Consequently, the rupee (INR) depreciated against the greenback over the last week, in line with our expectations.
Nevertheless, lower crude oil prices and strong foreign flows cushioned the downside for the local unit. The brent crude oil struggles to surpass $78 a barrel and the domestic market received considerable capital inflows.
According to NSDL (National Securities Depository Limited), the net FPI (Foreign Portfolio Investors) inflows over the past week stood at about $1.4 billion.
So far this month, the net FPI inflows stand at a little over $3 billion. But note that the fund flows in May were largely directed towards the equity segment. In fact, for this month, the debt segment has seen a minor net outflow of $175 million.
Chart
The rupee declined in the past few sessions. However, the support at 82.30 is providing some relief, at least temporarily. On the back of this support, INR gained 0.1 per cent on Tuesday and ended at 82.2150. From the current level, there is a resistance at 82.
If INR slips below 82.30, it could weaken to 82.70 or even to 83 in the near-term. On the other hand, if it breaches 82, it can retest the key barrier at 81.60.
The dollar index (DXY) rallied towards the end of last week and closed above the hurdle at 102.20. It is currently hovering around 102.40. DXY might regain traction and appreciate from here, possibly to 103.50 this week.
This can weigh on the domestic currency. But a drop below 102.20 can drag the dollar index back to 101, positive for INR.
Outlook
While the support at 82.30 is helping the rupee to stay afloat, the upside appears to be limited because of the strength in dollar.
So, the chances are high for the rupee to stay flat i.e., between 82 and 82.30 this week.
But since the dollar shows some bullish inclination, we cannot completely reject the chance of INR slipping below 82.30 and touching 82.70. Hence, 82.30 is the key level to watch out for in the short-term.
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