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The rupee (INR) remained flat through the past week against the dollar (USD). On Tuesday, it ended at 83.50. But the fundamentals have been supportive for the domestic currency.
An increase in unemployment in the US to 4.1 per cent, the highest since December 2021, and a drop in average hourly earnings to 3.9 per cent in June point to an increase in probability of a rate cut in September. Consequently, the dollar and the US Treasury yields fell.
In addition, the capital flows to the domestic market have been healthy. As per the NSDL (National Securities Depository Limited) data, the net FPI (Foreign Portfolio Investors) inflows so far in July stands at $2.1 billion. In June it was $5 billion. Continuing inflow is a positive for the local unit.
While the above fundamental factors are supportive of a rally in the Indian currency, the chart indicates that the rupee remains in a range at the moment.
Outlook
The rupee closed at 83.50 on Tuesday. Hence, the consolidation band of 83-83.60 stays valid. It is now hovering around the lower band of the range. So, we can expect INR to move up gradually from the current level, possibly to 83 in the forthcoming sessions.
If INR breaks out of 83, it can lead to another leg of a rally which can take it to 82.80 and then to 82.50. On the other hand, if INR breaches the support at 83.60, it can face a swift sell-off to 84, a support. Subsequent support level is the price range of 84.20-84.30.
The dollar index (DXY), after facing a barrier at 106, declined over the past week. Currently trading at 105, the price action hints at further fall. The nearest support is the 200-day moving average at 104.40. Next support is at 104. Such a fall can aid rupee appreciation.
But if DXY recovers from the current level, it is likely to face resistance at 105.50 and 105.80. To turn the trend bullish again, the dollar index ought to get past 106-mark. This is a bearish scenario for the rupee.
In the upcoming sessions, the rupee is expected to appreciate. However, for the short-term, the upside can be capped at 83.
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