The rupee gained nearly 0.2 per cent against the dollar on Tuesday and ended at 88.12. But it has been flat against the dollar over the past week. While Trump recently mentioned sharing a special relationship with India, now there are talks of the US considering ‘outsourcing tax’, which could negatively impact the domestic IT sector.
Although the chances for this to occur are slim, as per the experts, it is enough to counter the positive impact of Trump’s statement. Also, the Reserve Bank of India has been mitigating the weakness on the rupee, according to some reports.
Nevertheless, the broader bear trend is intact and foreign flows have been a major factor for that. As per NSDL (National Securities Depository Ltd) data, net FPI (Foreign Portfolio Investors) outflows so far in September have been $1.1 billion. As the equity market continues to struggle, the foreign outflows might continue.
The chart, while it shows the overall bearishness in the rupee, now indicates that the downtrend has lost momentum. Here’s an analysis.
Chart
The rupee has been consolidating between 87.90 and 88.30 since the beginning of this month. While the broader trend remains down, the current sideways crawl shows that the bears have lost steam. While there may not be a trend reversal, we are likely to see a minor rally.
But for that, the rupee should surpass the barrier at 87.90. Once this happens, the local currency will appreciate to 87.70, a potential resistance. Subsequent resistance is at 87.50.
On the other hand, in case the rupee slips below the support at 88.30, it can extend the decline to 88.50, a support. A breach of this can lead to a fall to 88.75.
The dollar index, which has been oscillating between 97.60 and 99 in the recent weeks, breached the lower boundary on Monday. This is a bearish signal. From the current level, it is likely to fall to 97. A fall below this can drag it to 96.50.
In case the dollar index reverses higher, it will face resistance at 98 and 99. Only a clear breakout of the latter can turn the short-term outlook bullish. Until then, the movement in the dollar index can be favourable to the local currency.
Outlook
While the rupee appears flat now, the dollar index slipping below a support is good for the domestic unit. Therefore, from the current level, we expect the rupee to appreciate to 87.70 in the near term.