The rupee, after witnessing a volatile first half of February, has now stabilised against the dollar. It has been witnessing a sideways movement in the past few sessions. The domestic currency has closed Tuesday’s session at 86.96.
Helping the rupee stabilise, the dollar fell over the past week. The greenback softened as the retail sales data in the US came in weaker-than-expected. For January retail sales fell 0.9 per cent against the expected decline of 0.2 per cent.
Also, fresh talks on Russia-Ukraine war has given some optimism to the market and so, the safe haven demand for dollar turned weak.
However, the recent decline in the dollar was not completely capitalised by the Indian currency as capital outflows continue. As per NSDL (National Securities Depository Limited) data, the net FPI (Foreign Portfolio Investors) outflows over the past week is at nearly $4 billion.
As the domestic equity market continues to struggle, more outflows is likely, potentially weighing more on the rupee. Substantiating this, the charts show that the rupee’s long-term bear trend is intact.
Chart
The rupee is now consolidating in the range of 86.60-87. In case it breaches the support at 87, it can depreciate to 87.60. The downswing might even take the rupee to 87.80 in the near-term.
On the other hand, if the rupee breaks out of 86.60, it can rise to 86.20, a resistance. Above 86.20 is another barrier at 86. So, the upside is likely to be capped between 86.20 and 86.
The dollar index, which has been falling since the beginning of this month, shows signs of further dip. Currently hovering around 107, it might decline to the 105-106 range, which is a strong support. Such a fall can help the rupee move up to 86.20.
But if the dollar index resumes the rally from the current level, it can touch 108.50 and 109.50 soon. These are the potential resistance levels. This upswing in the dollar index can possibly drag the rupee to 87.40-87.60 range.
Outlook
The prevailing conditions indicate that the rupee is likely to remain in the 86.60-87 range over the next week. Post which, an eventual breach of 87 can result in a fall to 87.60.
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