Weekly Rupee View: Outlook firm but resistance can cap gains

The Reserve Bank of India announced that it will buy ₹1.25 lakh crore worth of government bonds between May 6 and May 19.
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The rupee appreciated about 0.8 per cent over the last week. On Tuesday, it closed at 84.44 versus the greenback. The rupee performed well despite the dollar seeing a recovery recently.

A slew of factors, particularly since the beginning of last week helped the rupee. The Reserve Bank of India announced that it will buy ₹1.25 lakh crore worth of government bonds between May 6 and May 19. This boosted the sentiment as the demand for bonds will lower the interest rates and put more liquidity into the system.

Also, since April 28, the net inflows of the Foreign Portfolio Investors (FPI) stood at over $800 million as of May 6, as per NSDL data.

Apart from this, OPEC announced a collective raise in output of 4,11,000 barrels a day for June, nearly thrice the volume actually scheduled. This is weighing on the crude oil price and India being a big importer of the energy commodity, a lower crude oil price is good. 

But there are risks. Better-than-expected jobs (addition of 1,77,000 jobs versus the expected 1,38,000 job) data in the US means that the labour market is strong which will give room for the Fed to keep the rates unchanged. This can be positive for the dollar.

However, overall, the sentiment appears to be in favour of the rupee. That said, although the charts are positive, it hints at a roadblock ahead.

Chart 

The rupee rallied to hit an eight-month high of 83.75 on Friday before moderating to the current level of 84.44. As per the chart, 84.25 and 84 are notable resistance levels. If the local currency declines on the back of this, it can soften to 84.70 and 85.00. 

But if the domestic currency appreciates and breaks out of 84, it can extend the rally to 83.50 and 83. Looking at the dollar index, the likelihood for the rupee gaining more is high.

The dollar index, which recovered after finding support at 98 a couple of weeks ago, is struggling to move past a barrier at 100.25. Until this level holds, the weakness will persist and can drag the index back to 98.

That said, if the resistance at 100.25 is breached, it can move up to 101.15, a crucial resistance. Only a breach of this can lead to a sustainable upswing in the dollar.

Outlook 

There is a good chance for the rupee to appreciate from the current level of 84.44 to 84 over the next few sessions. But since there is a resistance, it might as well stay in the sideways band of 84.00-84.70.

Published on May 6, 2025