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The Indian rupee is gaining momentum. The currency strengthened in the past week, breaking above the resistance at 70.50, and tested the psychological level of 70 as expected. Surprisingly, the rupee strengthened in the past week, despite a sharp rise in the dollar index. The currency closed at 69.88 on Monday, up 1.47 per cent for the week.
Supporting factors
Oil prices continuing to trade stable in a sideways range, and foreign money inflows, especially into the equity segment, seem to be aiding the rupee remain strong. Brent Crude Oil is retaining its $64-$68 per barrel sideways range. It is likely to remain range-bound for some more time, which could continue to provide support to the rupee. Though foreign portfolio investors (FPIs) have been selling India’s debt, a strong inflow into the equity segment is helping the rupee gain ground. FPIs have poured about $3.2 billion into the equity segment since the beginning of February.
The currency market is likely to remain volatile this week, as Britain is headed for a series of voting with regard to Brexit. If the voting results are in favour of UK Prime Minister Theresa May, the euro and pound could surge against the US dollar. This, in turn, could drag the dollar index sharply lower, and trigger a sharp rally in non-dollar currencies like the Indian rupee.
The rally in the dollar index lost pace after the weak US jobs data release on Friday. The index came off slightly from the high of 97.70. It is currently trading at 96.35. As long as it trades below 97.7, a fall to 97 or even 96.6 is possible in the near term. Such a fall in the dollar index can help the rupee retain its strength in the coming days.
Rupee outlook
The outlook continues to remain positive for the Indian rupee. The currency has a key support around 70.20. As long as it trades above this support, there is a strong likelihood of it strengthening towards 69.5 and 69.45 in the short term. Inability to breach the 69.50-69.45 resistance zone can trigger a corrective fall to 70 thereafter. However, the bias will continue to remain positive. An eventual break above 69.45 will increase the likelihood of the rupee extending its upmove towards 69.2 and 69.1 against the dollar in the coming weeks.
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