USD INR trend to remain bullish above 77.50, FPI outflows limit downside in Rupee; check support, resistance

The near-term bias remains neutral while the overall bullish trend is intact as long as it trades above 77.50. Spot USDINR is having resistance in the area of 78.80 to 79 range and support around 77.90.

Rupee, INR USD, Dollar
The upside for USDINR is capped due to RBI intervention and improved risk sentiments, but the downside is also limited due to FPI outflows and unwinding of the carry trade, as the interest rate differential gets narrow.

By Dilip Parmar

Indian rupee posted its eighth weekly loss and marked the weakest close against the American dollar following foreign fund outflows, higher dollar demand and weaker macro data. Indian rupee heads for the worst weekly loss after March 2020 and sixth monthly decline.  

There are multiple factors driving the rupee lower in the last couple of months but among all factors, higher dollar demand and lower supply is the main force dragging it lower. So far this year, foreigners have pulled out around $30 billion from the domestic equities and debt markets after US federal reserves started monetary policy normalisation and quantitative tightening. 

The tighter dollar liquidity and dollar outflows along with weaker macro data weighed on the rupee. However, among the regional currencies, the rupee became the median performer as RBI’s dollar supply by way of intervention in the Forward markets helped a lot.  

India’s forex reserves dip from $633.61 billion to $590.59 billion, a decline of $43.02, this is on account of some revaluation and RBI’s dollar selling. 

In the near term, spot USDINR could show profit booking as a gauge of the dollar’s strength edges lower after posting its first weekly decline in four weeks as rising regional shares improve risk sentiment. The dollar index, a basket of six currencies, is facing stiff resistance around 105.50 after the treasury retreated from the high of 3.5% to 3.15%. 

The upside for USDINR is capped due to RBI intervention and improved risk sentiments, but the downside is also limited due to FPI outflows and unwinding of the carry trade, as the interest rate differential gets narrow. 

The near-term bias remains neutral while the overall bullish trend is intact as long as it trades above 77.50. Spot USDINR is having resistance in the area of 78.80 to 79 range and support around 77.90.

(Dilip Parmar, Research Analyst, HDFC Securities. Views expressed are the author’s own.) 

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