- The Indian rupee is expected to strengthen during early European trading sessions on Tuesday.
- While the Federal Reserve’s dovish stance and falling oil prices support the INR, a rise in demand for the US dollar may counter this effect.
- Notably, India’s manufacturing PMI hit a 14-month high in June.
- Investors will be focused on Federal Reserve Chair Jerome Powell’s speech and the ISM US PMI data later on Tuesday.
The Indian rupee (INR) is anticipated to gain momentum on Monday, aided by remarks from the US Federal Reserve that lean dovishly. Ongoing concerns about the Fed and the market further undermine the strength of the dollar. Additionally, the INR benefits from lower crude oil prices, which is significant since India is a major global oil consumer. Typically, lower oil prices are favorable for the rupee’s value.
Recent data released shows that the HSBC India Manufacturing Purchasing Managers Index (PMI) climbed to 58.4 in May, aligning with market expectations. Following this news, the local currency appears to be holding steady.
However, robust demand for the US dollar from both foreign and domestic banks could increase pressure on the Indian currency. Domestic portfolio investments have been relatively weak, weighing on the rupee. In fact, foreign investors pulled out about $5 billion from local stocks and bonds in the April-June quarter.
Looking forward, investors are eagerly awaiting the June report for the HSBC Manufacturing Purchasing Managers Index (PMI) scheduled for later on Tuesday. In addition, Powell’s speech and ISM manufacturing PMI data will be prominently featured on the US agenda.
Daily Digest Market Mover: Indian Rupee Rises as the US Dollar Weakens
- A report from HSBC indicated that companies experienced one of the fastest increases in external orders in over 20 years, with product manufacturers boosting purchases to the highest levels seen in 14 months, enhancing inventory growth.
- Indian officials have extended their visit to Washington to negotiate a trade deal with President Trump’s administration while addressing ongoing concerns from both sides, according to Reuters.
- Anil Bhansali, director at Finrex Treasury Advisors, mentioned that state-owned banks might be purchasing dollars for the RBI, and the demand for dollars among oil firms and importers is keeping the rupee stable.
- India’s fiscal deficit recorded in April and May reached 131.6 billion rupees ($1.5 billion), which corresponds to 0.8% of the estimated closing figure for the fiscal year.
- The Reserve Bank of India’s Financial Stability Report indicates continued robust growth in the Indian economy, backed by strong macroeconomic foundations and prudent policy actions.
- The market considers a nearly 92.4% chance of a quarter-point rate cut by the Fed, an increase from 70% just a week ago, as indicated by the CME FedWatch tool.
Technical Analysis: USD/INR Takes a Downward Trend
The Indian rupee is trading strongly today. The USD/INR pair seems to be continuing its downward trend, falling below the 100-day exponential moving average (EMA) on the daily chart. The 14-day relative strength index (RSI) is also beneath the midline at around 46.80, suggesting that the bearish sentiment might persist in the short term.
If negative trends continue, initial support for USD/INR is at 85.50, the lower boundary of the uptrend channel. A decline below this level could lead to further decreases, potentially reaching the May 26 low of 84.78. Another critical support level to monitor is 84.25, which was seen on May 6.
The first resistance level in this currency pair is at 85.67, corresponding to the 100-day EMA. Sustained trading above this level could lead towards the June 25 high of 86.13. Further upward, the next resistance to watch is at 86.79 from June 20.
Indian Rupee FAQ
The Indian rupee (INR) is notably sensitive to external factors like crude oil prices, as the country depends heavily on oil imports, and the strength of the US dollar, given that most trade happens in dollars. Additionally, the Reserve Bank of India (RBI)’s interventions in the Forex market and its interest rate policies significantly influence the rupee.
The RBI actively engages in the foreign exchange market to maintain stable exchange rates and promote trade, while also aiming to keep inflation within its target of 4%. Higher interest rates typically bolster the rupee by attracting investors seeking higher returns.
Macroeconomic factors like inflation, interest rates, GDP growth, trade balance, and foreign investment inflows all play a role in the rupee’s value. Strong growth can attract more overseas investments, increasing demand for the rupee, while a less negative trade balance can strengthen it as well. Higher interest rates are generally beneficial too.
Conversely, higher inflation tends to negatively affect a currency, particularly if it’s higher than that of competing nations, as it signals potential devaluation. This situation increases export costs and raises the number of rupees needed to purchase foreign goods. However, increased inflation may compel the RBI to raise interest rates, leading to a potential boost for the rupee as international demand rises.
