View: Rupee likely to trade in 70.60-71.40 range.

By Bhavik Patel

The rupee has two shining angels to thank for its strength. First is strong equity market.

Indian market is near record highs and strong FII inflows are also helping the rupee’s cause. October figure suggests FII bought Rs 8,955 crore, while for two days of November they were net buyers to the tune of Rs 395 crore.

So clearly, strong equity market is helping the domestic unit. On November 4 alone, FII bought to the tune of Rs 3,470 crore in equity and debt.

As seen from the chart below, we could see FIIs turned bullish from late October and continues to be net buyers in November.

Another factor for the strong rupee is strong yuan. China’s offshore yuan has surged past 7 per dollar as US-China trade talks were progressing well and there was optimism over signing Phase I deal this month. Another reason for yuan’s strength is Chinese central bank’s decision to trim lending rates by only five basis points. The optimism has spilled over to other currencies such as Australian dollar, Indian rupee and New Zealand dollar.

We can see yuan at 3-month high and breaking 7 per dollar barrier. After three months it has closed below 50-Day moving average and now is poised to test 200-DMA.

Here we can see the comparison between Chinese Offshore yuan and the rupee. Since June they both are trading in a similar fashion and now the appreciation of yuan is helping the domestic unit to appreciate. Both FII inflows and strong yuan are helping the rupee to appreciate against the dollar.

USD-INR’s 200-DMA comes at the 71.55 level and only if the pair sustains above that level, we see the rupee depreciating. Rupee has ample support around 70.40, so we don’t expect it to sustain below that level. We expect rupee to trade in the range of 70.60-71.40.