The rupee depreciated 19 paise against the dollar over the past week and ended at 95.12 on Tuesday. High crude oil prices and a strong dollar weighed on the currency. However, foreign portfolio inflows of $510 million provided support. Investors now wait for the US Federal Reserve’s policy decision on Wednesday.
The rupee depreciated 19 paise against the dollar over the past week and ended at 95.12 on Tuesday. It was weighed down by renewed strength in the greenback and elevated crude oil prices. However, foreign portfolio inflows provided some support to the local currency.
Foreign flows remained positive for the second consecutive week. According to NSDL data, net FPI inflows stood at about $510 million over the past week, bringing cumulative net outflows in October down to around $3.8 billion.
Meanwhile, heightened uncertainty has driven safe-haven demand for the dollar and US Treasuries. The dollar has resumed its upward movement after a brief correction. However, the US 10-year Treasury yield has declined to around 5 per cent from 5.37 per cent earlier this month.
Crude oil prices continue to remain elevated, posing a significant headwind for the rupee. Brent crude futures are currently trading around $111/barrel. Sustained high oil prices weigh on the Indian currency, given the country’s dependence on crude imports.
Attention now turns to the US Federal Reserve’s monetary policy decision on Wednesday. The central bank is widely expected to leave its benchmark interest rate unchanged at 3.75-4 per cent. However, the Fed's commentary on inflation and the future course of interest rates will be crucial in determining the dollar’s direction.
Overall, the rupee continues to face pressure from renewed dollar strength and elevated crude oil prices. Nevertheless, positive foreign flows and easing US Treasury yields could provide some support, limiting the extent of depreciation.
As per the chart
The rupee has been declining over the past few sessions after facing resistance at 94.40. The local currency has now slipped below 95, indicating the possibility of further weakness.
The nearest support is at 95.60, where the 21- and 50-day moving averages are positioned. A breach of this level can drag the rupee further down to 95.80.
On the other hand, if the rupee recovers above 95, it can extend the rise to 94.40. A breakout above this resistance can lift the local currency to 94.20. A rally past this level could strengthen the bulls and potentially turn the trend bullish.
However, as it stands, a rally beyond 94.40 appears unlikely, given the renewed strength in the dollar.
The dollar index, after witnessing a corrective decline, has resumed its uptrend on the back of support at 101.50. Currently trading at 102.20, the index faces resistance at 102.60. A breakout above this level can lift the index to 103 and subsequently to 103.50, potentially putting further downward pressure on the rupee.
Bearish outlook
The rupee is likely to retain a bearish bias, with renewed dollar strength potentially dragging the local currency towards 95.60-95.80. While positive foreign flows could provide some support, a sustained recovery appears unlikely unless the rupee breaks above 94.40.