Rupee Weekly View: Rupee stagnates ahead of Fed meeting

All eyes are on the Fed as it prepares to announce its policy decision on Wednesday. An increase of 50 basis points in the reference rate is expected. This has already been widely priced into the market and it remains to be seen if this can impact the Dollar (USD) and Rupee (INR). The Indian currency was down a fifth of a percent on Tuesday in the offshore market and is trading at 76.67 from 76.52 at Monday’s close in the spot market. Indian markets were closed on Tuesday due to a public holiday. With that, the year-to-date loss of the INR against the USD stands at 3.1%.

That said, the Rupee has been one of the best performing Asian currencies over the past month and this may be largely due to a possible intervention from the RBI. Notably, foreign exchange reserves fell nearly $18 billion to $600 billion on April 22 from around $618 billion on March 25. However, the fundamentals remain weak and this could possibly push the local currency lower in the coming weeks. For example, crude oil prices continue to be at high levels and foreign portfolio investors continue to pull back. In April, net REIT outflows were nearly $3 billion and for the calendar year it is $18.8 billion.

Watch for the OPEC+ meeting, which can have an impact on crude prices. The negative correlation between the rupee and oil means that a fall in prices is good for the national currency and vice versa. Also, don’t miss the US Nonfarm Payrolls numbers due out later in the week on Friday.

Graphics

Since the last week of April, the rupiah has been following a horizontal trend, oscillating widely between 76.40 and 76.80. So, in the short term, the INR must break through either of these levels to gain some clarity. A break of 76.40 can take the rupiah to 76.15, above which 76 is strong resistance. On the other hand, a break of 76.80 can take it down to 77. As the overall trend is negative, the chances are strong to see a break below 76.80 and a drop to 77 and maybe even 77.20, rapidly.

The Dollar Index (DXY) broke through the resistance at 102.50 and it even broke above the 103 mark last week. From there, the direction can be set by the outcome of the Fed meeting. The closest resistance is at 103.60 while the closest support is at 102.50. But note that the index is trading just below the multi-year high and therefore, the next leg of the move on either side may be quick.

Outlook

Technically the charts show that the USDINR currency pair is trading flat and basically it can be an action packed week as certain key events can have a significant impact on the exchange rate. Thus, participants are advised to refrain from negotiating until a clear direction emerges.

Published on

May 03, 2022

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