News Analysis

Rupee’s upmove gains momentum

Gurumurthy K Updated on December 24, 2018

The 11% decline in crude oil price last week helped the rupee gain strength

The upmove in the Indian rupee is gaining momentum as the market approaches the year-end. The currency recorded its best weekly gain since September 2013 last week. The Indian rupee rallied over 2 per cent against the US dollar. Indeed, the currency gaining 1.6 per cent on Tuesday last week was the highest single-day gain since September 2013. The currency closed at 70.14 on Monday.

A sharp fall in crude oil prices last week helped the rupee gain strength. WTI Crude Oil prices plummeted 11 per cent last week from around $51 per barrel to $45.5 per barrel. The recent fall in crude oil prices has increased hopes of the country’s current account deficit coming down.

The US dollar index weakening on Thursday after the US Federal Reserve meeting also provided support to the rupee’s upmove. The US Federal Reserve increased the interest rate last week, as expected, by 25 basis points. The Fed lowered the number of possible rate-hikes in 2019 to two from its earlier projection of three.

Dollar outlook

The US dollar index fell to a low of 96.15 last week and has bounced from there. It is currently trading at 96.7. The index continues to trade within the broad 96-97.7 in a sideways range. It can continue to retain this range in this truncated week.

A breakout on either side of 96 or 97.7 will decide the next move. A strong break below 96 can take the index lower to 95 and 94.85. On the other hand, if the dollar index breaks above 97.7, it can test 98. A break above 98 will increase the likelihood of the index moving higher to 99.

Rupee outlook

The Indian rupee has key support in the broad 70.50-70.70 region. As long as the currency sustains above this support zone, an upmove to 69.5 is possible in the coming days.

A strong break above 69.5 will increase the likelihood of the rupee strengthening further towards 69.25 and 69.

The region between 69 and 68.8 is a crucial resistance zone, which may have the potential to halt the current upmove in the rupee.

The price action around this resistance zone will need a close watch, which will give a cue on the direction of the next move. Inability to breach the 69-68.8 resistance region can drag the rupee lower to 70 and 71 again. But a strong break above 68.8 will increase the possibility of the rupee strengthening towards 68.5 or even 68.

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