Rupee Gains as Equity Rises

The Indian rupee continued to strengthen and rose past the critical levels of 74.25 and 74 against the dollar (USD). However, last week, we forecasted the local unit to stay flat within 74.25 and 74.80.

On Tuesday, the Indian currency gained by 0.17 per cent as it closed at 73.91. According to experts, the recent rally was driven by carry trade buying, corporate dollar sales and foreign inflows as the equity markets are on a rally – the Nifty 50 is up by about 4 per cent since the beginning of the year.

The inflation numbers from India and the US will be released on Wednesday and this will most probably have an effect on the exchange rate of USDINR.

Foreign inflows

According to the National Securities Depository Limited (NSDL), the total net investments of FPIs (foreign portfolio investors) so far this month stands at $464 million – comparatively, it stood at $306 million a week back. Equities are driving the inflows as the net inflows into this segment stands at $477 million. In the days to come, as the equity segment look bullish, the net FPI flows can remain positive, which can keep the rupee afloat.

INR broke out of the barriers at 74.25 and 74 this week and this keeps the momentum in favour of the bulls. However, it is now facing a hurdle in the form of resistance band between 73.90 - 73.75. Thus, in the forthcoming sessions, the rupee may find it hard to extend the rally beyond 73.75 and might even face a corrective decline. Nearest supports can be spotted at 74.25 and 74.60. On the other hand, a breach of 73.75 can take INR to 73.40, the resistance level. Subsequent resistance is at 73.

The dollar index continued its movement within the price range of 95.75 and 96.90. Therefore, the near-term trend will remain uncertain as long as the index trades within this area and the direction of the break will throw us some light on the next leg of trend. A breakout of 96.90 can turn the trend positive and can take the index to the resistance at 97.60 and 98.00. But a break below 95.75 can be bearish wherein the index could fall to the nearest support at 95 and possibly even to 94.50.

Outlook

Although the uptrend is strong, the rupee is facing a strong barrier between 73.90 and 73.75. Therefore, it will most likely witness a minor correction in the coming week and can fall to 74.25 and 74.50. For the week ahead, traders can risk shorting the rupee at 73.90 and 73.75 with stop-loss at 73.60. Exit at 74.25.