The Indian rupee appreciated 35 paise against the dollar over the past week, supported by $446 million in foreign portfolio inflows. However, rising crude oil prices and a strong dollar index remain key concerns. Analysts said, "elevated crude oil prices could limit the scope for further appreciation," keeping the outlook challenging.
The rupee appreciated 35 paise against the dollar over the past week, supported by a return of foreign portfolio inflows. However, the continued rise in crude oil prices remains a key concern for the local currency.
Foreign flows turned positive over the past week. According to NSDL data, net FPI inflows stood at $446 million, providing some support to the rupee. Nevertheless, cumulative net outflows in October stand at around $4.3 billion.
Crude oil prices, meanwhile, have been on an upward trajectory since July. Brent crude, currently trading around $112 per barrel, has gained nearly 14 per cent so far in October. The sustained rise in oil prices remains a significant headwind for the rupee, given India’s dependence on crude imports.
Overall, the return of foreign inflows has provided some relief to the rupee. However, elevated crude oil prices could limit the scope for further appreciation, keeping the near-term outlook challenging.
Chart
The rupee has been declining over the past few days after facing selling pressure near 94.80. The local currency is currently trading at 94.93.
Although the recent price action indicates some weakness, the rupee has room to recover. The nearest resistances are at 94.50 and 94.20. Hence, a recovery towards the 94.50-94.20 region is possible.
On the other hand, if the rupee extends its decline from the current level of 94.93, it can fall to 95.80. A breach of this support can drag the local currency further down to 96.25.
The dollar index, after hitting a high of 102.95 last week, has moderated to 101.90. The index has immediate support at 101.80, its 21-day moving average, followed by another support at 101.60. As long as the latter holds, the broader bias will remain positive.
The likelihood of the dollar index resuming its rally is high. A recovery from the current level can lift it to 102.60. This could be followed by a break-out above 103, potentially taking the index to 103.50. Such a move would put renewed downward pressure on the rupee.
Outlook
The rupee could see a recovery towards 94.50-94.20 in the near term. However, with the dollar index likely to resume its rally and elevated crude oil prices remaining a headwind, the broader bias remains bearish. A reversal could drag the rupee towards 95.80-96.25.