The US dollar initially pulled back a bit during the trading session on Wednesday only to turn around and show signs of life again. By doing so, the market looks as if it is ready to continue to try and leapfrog above the ₹74.50 level. At that point, the market will have a proclivity to go looking towards the ₹75 level, as it was the most recent high.
If we can break above the ₹75 level, then it is possible that the market could go much higher, perhaps reaching towards the ₹75.50 level. Nonetheless, it is very likely that the market will continue to be noisy, as we have a lot of different things going on at the same time. Keep in mind that India is suffering at the hands of the Delta variant and the coronavirus losses have been very large in that country. Furthermore, the “risk off trade” continues to gravitate towards India, as the US dollar is a perfect expression of fear. Furthermore, yields in America have dropped quite a bit, so it does make a certain amount of sense that you would see emerging market currencies such as the Indian rupee get beaten down a little bit.
All this being said, if we break down below the ₹74.29 level, the market is likely to go looking towards the ₹74.03 level. It is also worth noting that the ₹74 level is just underneath there, and these large, round, psychologically significant figures tend to attract a lot of attention. Essentially, you are looking at the half rupee levels as potential road signs along the way, as the market has seen a lot of reaction in this general vicinity.
At this point, the Indian coronavirus situation simply must be under control before we can see the rupee strengthen quite a bit. The market will continue to be very choppy, but we will also have to pay attention to those virus numbers on the subcontinent. Ultimately, emerging market currencies have suffered a bit due to the coronavirus uncertainties and the variant. Furthermore, the global economy is trying to reopen, so that is a very strong sign, but at the end of the day the reality is that India is going to be a bit different because of the recent problems.
