The Indian Rupee (INR) saw a significant increase against the US Dollar on Tuesday, with the USD/INR pair dropping to around 94.80—marking its lowest level in two months. This movement is likely attributed to intervention from the Reserve Bank of India (RBI), more robust than anticipated Q2 Gross Domestic Product (GDP) figures, and a reduction in the Fiscal Deficit.
A report from Reuters indicated that the RBI has been actively intervening in both the spot and Non-Deliverable Forwards (NDFs) markets to bolster the rupee.
Nevertheless, there are questions about the sustainability of this strength. The RBI’s ongoing actions could limit its ability to sell more US Dollars, raising concerns about how long this trend can continue.
The RBI’s data reveals that total net short forward positions reached a record $137 billion in July, a rise from $104 billion in June. This suggests that the RBI will eventually need to purchase US Dollars to balance its positions, implying that the recent appreciation of the INR may not be lasting.
India’s Q2 GDP growth remains strong, fiscal deficit narrows
Data released on Monday indicated that India’s Q2 GDP growth matched the previous year’s rate of 7.8% Year-on-Year (YoY), which surpassed forecasts of 7.1%. Analysts from HDFC Bank noted that the increased growth stemmed from strong domestic consumption, ongoing government spending, investments, and solid export performance.
They pointed out that input cost pressures linked to the West Asia conflict were countered by growth in volumes, particularly in manufacturing and electricity, both of which saw nearly 9% growth. The standout sector was services, where financial, real estate, and professional services surged by around 12% during the quarter.
In terms of fiscal performance, India’s Q2 fiscal deficit was recorded at ₹4.55 trillion ($47.81 billion), or 26.8% of the target set for the financial year 2026-27, largely due to a substantial increase in net tax receipts. Government revenue from taxes amounted to ₹8.5 trillion, up from ₹6.6 trillion a year prior.
US data in focus
Meanwhile, in the United States, investors are looking forward to the release of the ISM Manufacturing PMI data for August and the JOLTS Job Openings data for July, set to be published at 14:00 GMT.
The Manufacturing PMI is anticipated to be 55.2, which is slightly lower than July’s figure of 55.6. Additionally, new job postings by US employers are projected to decrease slightly to 7.3 million from 7.359 million in June. The Job Openings data could significantly impact expectations regarding the Federal Reserve’s interest rate decisions.
This week, the Nonfarm Payrolls (NFP) data for August, due out on Friday, stands as a potential major influence on the US Dollar.
USD/INR Technical Analysis
On the daily chart, USD/INR is trading at 94.80, maintaining a bearish short-term outlook as it trades below the 20-period exponential moving average (EMA) of 95.45.
The Relative Strength Index (14) has dipped below 40 for the first time in nearly a year, indicating a potential bearish reversal.
Looking at resistance, the initial level is at the 20-period EMA around 95.45. This level represents the first barrier that the bulls need to overcome to alleviate immediate downward pressure and pave the way for a possible corrective bounce. Conversely, if the pair fails to stabilize above the fresh two-month low at 94.80, it might see a decline to 94.50, with the June low at 94.19 following closely behind.
