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Domestic woes dominated the Indian rupee even as the US dollar continued to weaken globally. It was another turbulent week for the currency.
The rupee opened weak at 63.54 and then tumbled to a low of 64.28 on Thursday. This is the first time it went below 64 since August 2013.
However, the currency gave back some of its losses on the final trading day of the week and closed at 63.94, down 0.81 per cent.
As warned in this column last week, Foreign Portfolio Investors (FPIs) intensified their selling in equities and debt which, in turn, pressured the currency.
FPIs turned net sellers in both the equity and the debt segments for the first time since February, on recent turbulence in global bond markets and a sudden spike in yields.
They sold $897.2 million in the Indian debt and $1.02 billion in the equities segment.
The respite on Friday came after an announcement from the government that it would set up a panel to look into the Minimum Alternate Tax (MAT) issue.
However, the technical outlook for Indian benchmark indices continues to remain bearish. Weak equities could keep the currency under pressure and drag the rupee further lower.
Data watch Macro economic data releases in recent times in the domestic market are being overshadowed by FPI selling, which is a big influence on market movements.
HSBC’s Manufacturing Purchasing Managers’ Index and Services Purchasing Managers’ Index (PMI) were released in the past week.
The manufacturing PMI fell to 51.3 in April from 52.1 in March. On the other hand, the Services PMI fell to 52.4 in April from 53 the month earlier. Slowdown in both these sectors could keep alive concerns about the growth momentum.
The coming week is also packed with a series of important data releases. The industrial production (IIP) and the market’s much-watched Consumer Price Index (CPI) inflation data are due for release on Tuesday. Wholesale Price Index (WPI) inflation data will be released on Thursday.
Dollar outlook The dollar index (94.79) extended its fall for the fourth consecutive week. The US trade deficit widening to $51.4 billion in the month of March triggered this.
This surge in deficit was fuelled by the sharp 9 per cent rise in goods import to $197.63 billion in March from $181.27 billion the month earlier as a strike in the ports ended and paved the way for movement of goods.
The data point keenly watched by the US Fed — US exports — inched up 1 per cent in March after having fallen for four consecutive months since November. Unless a strong pick-up in exports is seen, the Fed might not be in a hurry to change its language on interest rate hikes.
Although the good job numbers on Friday have brought relief to the greenback, the outlook remains bearish.
The dollar index has immediate resistance at 95.15 and then strong resistance in the 96-97 zone. As long as the index trades below 97, a fall to 93-92.5 is possible in the coming weeks.
But as the Indian rupee is being more influenced in recent times by domestic factors, this fall in dollar index may not help the rupee to strengthen.
The euro (1.12), the major component in the dollar index, has key short-term support at 1.11. A reversal from this support can take the euro higher to 1.15 and 1.16 in the coming weeks.
Rupee outlook The bearish momentum for the rupee has gained strength in the last three weeks. Although the currency managed to close slightly above 64, the fall below this psychological level for the first time in the last 20 months is a negative. Also, the inability to strengthen much on Friday reflects the inherent weakness in the rupee.
For the coming week, while the rupee remains above 64.2, the chances of it strengthening towards 63.4 and 63.2 cannot be ruled out. However, the short-term strength in rupee is expected to be limited to 63.
The key support level to watch now for the rupee is 64.2. A strong break below this level can drag the rupee lower to 64.85 in the short term.
A decisive weekly close below 64.2 will be very bearish, technically. It will confirm a head and shoulder reversal pattern on the charts. In that case, a fall to 66-67 could be on the cards over the medium term.
In such a scenario, one should not be surprised to see the rupee falling to a fresh low in the coming months. The target of such a head and shoulder pattern on the charts would be at 69.5.
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