- The Indian rupee rose in the early morning session of European markets on Wednesday.
- Improving risk appetite and a weaker US Dollar support the Indian Rupee (INR).
- Investors are awaiting U.S. August new home sales on Wednesday and Federal Reserve Chairman Kugler's speech.
The Indian Rupee (INR) edged higher on Wednesday. Improved risk appetite following China's stimulus package and a weaker US Dollar (USD) helped the rupee rise on the day. However, rising crude oil prices, outflows due to the FTSE reconstitution and a revival in demand for USD from large Indian importers could put selling pressure on the INR.
US new home sales data for August is due to be released on Wednesday. Traders will get more clues from the speech of Federal Reserve Board member Adriana Kugler. Dovish comments from Fed officials are likely to cause a decline in the US dollar vs. the Indian rupee. The highlight of the week will be the US Personal Consumption Expenditures (PCE) Price Index data for August, due to be released on Friday.
Daily Digest Market Trends: Indian rupee remains firm amid global risk-on mood
- S&P Global Ratings on Tuesday maintained its India gross domestic product (GDP) growth forecast at 6.8 percent and noted that the Reserve Bank of India (RBI) is likely to cut interest rates in October.
- “We expect the rupee to gain positive momentum as global risk appetite improves following China's stimulus measures and a weaker dollar. However, any sharp upside may be limited by rising crude oil and other commodity prices,” Anuj Choudhury, research analyst at BNP Paribas Sharecan said.
- The Conference Board's U.S. consumer confidence index fell to 98.7 in September from a revised 105.6 in August. The reading marked the biggest drop since August 2021.
- Federal Reserve Board Governor Michelle Bowman said Tuesday the central bank needs to proceed with caution in cutting interest rates because a key measure of inflation remains “uncomfortably above” its 2 percent target, but she preferred the Fed to follow traditional central bank behavior and cut rates by a quarter of a percentage point.
- According to the CME FedWatch tool, the market is pricing in about a 56% chance of a second 50 basis point cut at the November meeting, while the likelihood of a 25 basis point cut is 44%.
Technical analysis: Long-term outlook for USD/INR remains unchanged
The Indian Rupee has been on a bullish trend on the day. On the daily chart, the outlook for the USD/INR pair remains negative as the price remains below the crucial 100-day Exponential Moving Average (EMA). The downside momentum is supported by the 14-day Relative Strength Index (RSI) which is below its mid-line at around 36.00.
The first downside target for the pair is the September 23 low of 83.44. A break below this level would see a drop to the key support level of 83.00, which represents both the psychological level and the May 24 low.
Sustained trade above the 100-day EMA at 83.62 could pave the way for a support-turned-resistance at 83.75. The major barrier for USD/INR is at the 84.00 round mark.
Risk Sentiment FAQ
In the world of financial jargon, two terms are widely used: “risk on” and “risk off”, which refer to the level of risk that investors are willing to tolerate during a reference period. In a “risk on” market, investors are optimistic about the future and are more willing to buy riskier assets. In a “risk off” market, investors are worried about the future and start to “play it safe”, buying less risky assets that offer more certain profits, even if they are relatively modest.
Typically during “risk-on” periods, stock markets rise and most commodities other than gold also rise in value as they benefit from a positive growth outlook, currencies of major commodity exporters strengthen due to increased demand and cryptocurrencies rise. In “risk-off” markets, bonds (especially major government bonds) rise, gold shines and safe haven currencies like the Japanese Yen, Swiss Franc and US Dollar all benefit.
Major currencies such as the Australian Dollar (AUD), Canadian Dollar (CAD), New Zealand Dollar (NZD), Ruble (RUB) and South African Rand (ZAR) all tend to rise in “risk-on” markets. This is because their economies rely heavily on commodity exports for growth, and commodity prices tend to rise during risk-on periods. This is because investors expect stronger economic activity to lead to greater demand for raw materials in the future.
The major currencies that tend to rise during “risk-off” periods are the US Dollar (USD), Japanese Yen (JPY), and Swiss Franc (CHF). The US Dollar is the world's reserve currency, and US government bonds are considered safe because investors buy them in times of crisis, making it unlikely that the world's largest economy will default on its debt. The Yen is due to increased demand for Japanese government bonds, which are held at a high rate by domestic investors who are unlikely to sell them even in times of crisis. The Swiss Franc is due to strict Swiss banking laws that provide greater capital protection for investors.
