The Indian rupee declined to a new low of 89.95 against the dollar on Tuesday. Last week in this column, we said the rupee could consolidate between 89 and 89.60 for some time, then decline towards 90. But this fall has happened without seeing the consolidation. This indicates the RBI is continuing to stay out of the market without any intervention.
The domestic currency has weakened over the past week despite the greenback’s weakness. The dollar index (99.45) has fallen from around 100.25 to 99 over the last week. It is currently trading at 99.45.
The outlook for the Indian rupee remains bearish. The domestic currency looks vulnerable to decline below 90 in the near term. There is room to see 90.25-90.50 on the downside from here. But thereafter, there is a good chance of a recovery towards 89.80 eventually.
Immediate support is at 89.65. If the RBI intervenes immediately around the psychological level of 90 and pushes the rupee above 89.65, a recovery towards 89.20-89 is possible.
Rising US yields
The US 10-year Treasury Yield (4.11 per cent) opened the week on a strong note. It has been rising well since the beginning of this week. A crucial resistance is in the 4.15-4.2 per cent region. If the 10-year yield breaches 4.2 per cent, it could gain momentum. That, in turn, can take the yield up to 4.3 per cent and even higher going forward. Such a rise in Treasury yields can help the dollar index regain strength.
Dollar outlook
The dollar index (99.45) has good support in the 99-98.50 region. A fall below 98.50 is less likely. As long as the index stays above 98.50, the bias will remain bullish. The dollar index can rise back to 100.50 and even 101-101.20 in the coming weeks. This rise can happen either from here itself, or after a dip to 98.50.