The rupee appreciated 37 paise against the dollar over the past week. Strong foreign portfolio inflows and easing US Treasury yields helped the local currency recover. While crude oil prices moderated, they remain above the $100 mark. Investors now watch the US midterm election results for further direction on the dollar.
The rupee appreciated 37 paise against the dollar over the past week, supported by strong foreign portfolio inflows, easing US Treasury yields and a relatively stable dollar. Some moderation in crude oil prices also provided relief to the local currency.
Foreign flows remained positive. According to NSDL data, net FPI inflows stood at about $2 billion over the past week. So far in November, net inflows stand at around $800 million, indicating an improvement in foreign investor sentiment.
The US Treasury yields have been declining for nearly a month. The 10-year yield has now moderated to around 4.9 per cent. The decline in yields, along with a largely flat dollar, has helped the rupee to recover.
Crude oil prices have also moderated so far this week. However, Brent crude, currently trading around $106 per barrel, continues to remain above the $100 mark. Elevated oil prices remain a headwind for the rupee, given India’s dependence on crude imports.
Meanwhile, diplomatic efforts involving Qatar and Iran to ease the ongoing conflict have raised hopes of a de-escalation in geopolitical tensions. Any meaningful progress could help bring down crude oil prices, providing further support to the rupee.
Attention will also be on the US midterm election results, with key trends expected to emerge in the early hours of Wednesday (IST). The outcome could influence the dollar’s direction in the near term.
Overall, improving foreign flows, lower US Treasury yields and a stable dollar have provided support to the rupee. However, elevated crude oil prices and geopolitical uncertainty remain key risks to a sustained recovery.
Chart
The rupee has been rising over the past few days. The recovery is aided by the support at 95.25.
That said, whether the rally can sustain is uncertain as the local currency faces resistance levels at 94.40 and 94.20. Also, the dollar index, although appears to have lost some momentum, continues to trade above a key near-term base at 101.50.
If the rupee can rise above 94.20 and the dollar index slips below 101.50, the outlook for the Indian currency can turn bullish. In this case, it can appreciate to 93.50.
However, if the rupee falls off the resistance at 94.40 or 94.20, possibly triggered by a rally in the dollar index on the back of its support at 101.50, the rupee can slip to 95.25. A breakout of this can lift it to 95.80.
In the event of the dollar index surpassing the barrier at 102.60, the rupee might retest the all-time low or even extend the decline beyond it.
Note that the US midterm election results can lead to higher volatility in the dollar-rupee exchange rate in the short run.
Outlook
The rupee’s near-term outlook remains uncertain despite the recent recovery. While improving foreign flows and easing US yields offer support, the resistance at 94.40-94.20 could limit further gains. A reversal from this region could drag the local currency towards 95.25-95.80, whereas a breakout above 94.20 could pave the way for a rally to 93.50.