Rupee retains momentum on‘strong’ foreign money inflow

The Indian rupee, which is retaining strength, continues to gain momentum. The currency has strengthened, breaking above 68.45 as expected. Indeed, the rupee has strengthened much beyond the expected level of 69.l mentioned in this column last week. The currency breached the key psychological level of 69 and surged to a high of 68.44 on Monday before closing at 68.53, up 1.97 per cent for the week.

The inflow of foreign money into the equity segment has been helping the rupee remain strong against the dollar. Foreign Portfolio Investors (FPIs) bought $2.2 billion in Indian equities, and $1.2 million in the debt segment last week. Indeed, FPIs have poured over $5 billion in the equity segment over the last three weeks alone. This has put the Indian benchmark indices, the Sensex and the Nifty 50, on a strong note. The indices are bullish and there is a strong likelihood of the indices revisiting their previous highs in the coming weeks. Strong equities will, in turn, push the rupee further higher against the dollar in the coming weeks.

Fed meeting

The US Federal Reserve monetary policy meeting is scheduled this week. The outcome of this meeting on Wednesday will be significant to see if there is a change in its stance on the rate-hike front. It will be important to see the Fed’s comment on global economic growth at a time when other major central banks are revising their respective region’s growth prospects. European Central Bank (ECB) has revised the growth outlook of the Euro region substantially lower to 1.1 per cent from its earlier forecast of 1.7 per cent. The ECB has also announced a new stimulus programme. Any hint from the Fed to slow down the pace of interest rate hikes will trigger a sharp fall in the dollar.

This, in turn, will be positive for risky assets such as equities and non-dollar currencies. It could push the rupee further higher against the dollar.

The strong gap-up opened above 69 on Monday, and a subsequent break of 68.86 – the 50 per cent Fibonacci retracement level – is a positive for the rupee. This has strengthened the upmove in the rupee which has been in place over the last few weeks. The level of 68.86 and the region between 69.1 and 69.2 will now act as a strong support. As long as the rupee trades above 68.86, the bullish outlook will remain intact. There is a strong likelihood of the rupee appreciating further to 68.3 and 68 in the near term.

A further decisive break above 68 can take the rupee higher towards 67.55. The level of 67.55 – the 61.8 per cent Fibonacci retracement support – is the next crucial resistance for the rupee. As long as the rupee trades above 69.2, an upmove to test even 67.55 cannot be ruled out over the medium term.

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