An eventful week ahead for rupee

A series of major central bank meetings may keep the currency market volatile

The rupee remained choppy within a narrow range of 64.16 to 64.51 in the past week and closed at 64.44 on Monday.

With this, the currency has now remained within the broad 64-65 sideways range for eight consecutive weeks. A strong trigger is needed for the rupee to break this prolonged consolidation. Will the much awaited US Federal Reserve meeting on Wednesday provide this trigger? We will have to wait and see.

Central bank meetings

This week is packed with a series of major central bank meetings. It begins with the US Federal Reserve meeting on Wednesday. A 25 basis point rate hike is widely anticipated and has been almost factored in the market.

It will be significant if the Fed changes its stance on its future rate hike path. If the Fed hints at a slower pace of rate hikes going forward, the dollar could come under pressure.

The dollar index gained last week on the back of the unexpected outcome of the UK elections that resulted in a hung parliament.

The Bank of England and the Bank of Japan are the other two major central banks whose meetings are scheduled this week — on Thursday and Friday, respectively. These events may keep the dollar volatile through this week.

On the domestic front, wholesale price index and trade balance numbers are the key macroeconomic data due for release this week.

Dollar outlook

The dollar index has bounced from the support around 96.5 last week and is currently trading around 97.10. A range-bound move between 96.5 and 98 is possible for some time.

A breakout on either side of 96.5 or 98 will determine the next move. A fall below 96.5 can take the dollar index to 96 initially. Further break below 96 can drag it to 95.

Such a fall in the index will increase the likelihood of the rupee strengthening and breaking above 64. On the other hand, if the dollar index breaks the range above 98, a rally to 99 and 99.3 is possible.

Rupee outlook

Near-term support for the rupee is at 64.5. As long as it trades above this support, the possibility of it strengthening to 64 in the coming days cannot be ruled out.

But if the rupee falls below 64, possibly on the back of the Fed meeting, it can fall to 64.75 initially.

Further break below 64.75 can drag the rupee lower to 65.

If the rupee breaks above 64, it can strengthen to 63.85. A break above 63.85 can see the rupee appreciate to 63.60.

On the other hand, if the rupee breaks below 65, the doors open for a fresh fall to 66 or 66.3.

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