The rupee appreciated 81 paise against the dollar, closing at 93.94 on Monday. A sharp fall in crude oil prices and strong foreign inflows supported this gain. Easing geopolitical tensions helped the currency break out of its recent range. Experts said the outlook remains positive as the bullish trend continues.
Sharp fall in crude prices and strong foreign inflows support further appreciation
The rupee appreciated 81 paise against the dollar over the past week, closing at 93.94 on Monday. The local currency was supported by a sharp decline in crude oil prices and improving foreign portfolio inflows.
Easing geopolitical tensions have provided significant relief to the rupee. The US-Iran conflict appears to be moving towards de-escalation, with diplomatic negotiations expected to continue. The reduced risk of further military escalation has helped ease concerns over crude oil supplies.
Consequently, oil prices have corrected sharply. Brent crude futures tumbled about 13 per cent last week and have declined nearly 8 per cent so far this week. The fall in oil prices is positive for the rupee, given India's dependence on crude imports.
Foreign portfolio flows have also been supportive. According to NSDL data, net FPI inflows so far in November stand at around $6.4 billion. The sustained inflows have helped strengthen the local currency.
Overall, the sharp correction in crude oil prices and improving foreign flows have created a favourable environment for the rupee. Continued easing of geopolitical tensions could provide further support, although developments in the US-Iran negotiations will remain crucial in determining the near-term direction.
Chart
The rupee extended its rally last week, closing above the key resistance at 94.20. With this, the local currency has broken out of the broad 94.20-96.80 range, turning the outlook positive.
The price action is encouraging, with the rupee forming higher highs and higher lows over the past month. This indicates a strengthening bullish trend, suggesting that further appreciation is likely.
From the current level, the rupee could see a minor correction towards 94.40-94.50 before resuming the rally towards 93.40. However, a fall below 94.40 could trigger a deeper correction towards 95.
The dollar index, meanwhile, has been largely consolidating over the past month. As long as it remains above the support at 101.50, the bias will remain positive. Nevertheless, the index moving within the 101.50-102.60 range is unlikely to pose a significant threat to the rupee's uptrend.
However, a breakout above 102.60 in the dollar index could put renewed downward pressure on the rupee. While such a move appears unlikely over the next week, the risk cannot be ruled out.
Outlook
The rupee's near-term outlook remains bullish following the breakout above 94.20. While a minor correction towards 94.40-94.50 is possible, we expect the local currency to resume its rally towards 93.40, supported by softer crude oil prices and strong foreign inflows.