The rupee closed at 87.21 against the dollar on Tuesday, marking a decrease of nearly 0.6 per cent. Several factors contributed to this negative impact, including US President Trump’s announcement that tariffs on Canada and Mexico would proceed after a 30-day pause, as well as increased dollar demand due to the expiry of derivative contracts in the domestic market. Additionally, reports of importers demanding dollars for hedging added further pressure on the rupee.
The domestic equity market’s decline also led to capital flight, resulting in a sell-off of the rupee. Data from the National Securities Depository Limited indicated net Foreign Portfolio Investor (FPI) outflows of approximately $1.1 billion over the past week, with total equity segment outflows for February reaching $3.8 billion.
Despite the dollar remaining stable in recent sessions, the rupee depreciated due to these factors. The Reserve Bank of India intervened on Tuesday to limit the rupee’s decline, offering some relief. However, the rupee’s bearish trend persists, supported by technical charts.
Looking at the chart, the rupee breached support at 87, closing at 87.21 on Tuesday. This break opens the possibility for further weakening. The potential for a decline in the dollar index could provide some relief, with a move towards the nearest support at 105.50 possibly allowing the rupee to recover to 86.80 and re-enter the 86.60-87 range.
However, if the dollar index rebounds from its current level of 106.30 and moves towards 108, the rupee could test support levels at 87.60 or even 87.80. In the coming days, given the potential softening of the dollar, the rupee may recover to 87 or 86.80. Nonetheless, the broader bearish trend suggests that any upside could be limited.
Overall, while there may be some relief in the near term due to potential dollar softening, the rupee’s outlook remains bearish with a cap on any potential upside.
