Mumbai: Political uncertainty as well as capital outflows from the financial markets are likely to restrict the Indian rupee in a range of 70-71 per US dollar next week, experts said on Saturday.
However, low crude oil price is expected to limit any weakness in the Indian currency.
According to Edelweiss Securities' Head of Forex and Rates Sajal Gupta, "The rupee closed at 70.67, thus becoming the third-best performing currency in Asia on the back of weaker crude."
"The rupee strength may be limited going forward on the back of upcoming state elections and RBI (Reserve Bank of India) buying US dollars to recoup reserves."
Political uncertainty is expected to flare up due to the ongoing state elections. This can weaken the rupee. Elections to constitute assemblies in Chhattisgarh, Madhya Pradesh, Rajasthan, Telangana and Mizoram are scheduled for this month and the next.
Besides, a latest set of data showed that the Reserve Bank of India is making efforts to recoup its reserves. India's foreign exchange reserves rose by $568.9 million during the week ended November 16 to $393.58 billion.
In addition, any further outflow of foreign funds from the Indian equity and bond markets might have an adverse impact on the rupee.
The provisional figures from the stock exchanges showed that foreign institutional investors sold scrips worth Rs 856.61 crore in the week ended November 23.
"Crude oil has erased all its price gains for this year. This a major benefit to India, as we are a net consumer of oil. It also incentivises carry-trade as real rate differential between India and others becomes attractive, which adds fuel to long INR trade," Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, told IANS.
"Over the next week, we can see INR/USD test 70 levels and trade within a range of 70 to 71 on spot."
The rupee closed over five per cent higher at 70.67 per US dollar on Thursday from its lifetime low of 74.47, which it had hit in early October. It gained Rs 1.24 from its previous week's close of Rs 71.92.