The Indian Rupee (INR) exhibited stability on Tuesday, maintaining its position against the firmer US Dollar (USD). The recent uptick in US bond yields and reduced expectations of rate cuts from the Federal Reserve (Fed), buoyed by robust US employment data, bolstered the Greenback temporarily. However, factors such as lower crude oil prices and diminished political uncertainties surrounding India’s elections may provide support to the INR and limit upside potential for the currency pair. Additionally, intervention by the Reserve Bank of India (RBI) is anticipated to prevent significant depreciation of the Indian Rupee.
Market participants are closely monitoring India’s Consumer Price Index (CPI), scheduled for release on Wednesday. Concurrently, the US will unveil its May CPI ahead of the Fed interest rate decision. Following the Fed meeting, the central bank will update its Summary of Economic Projections (SEP). Any hawkish signals from Fed officials are likely to strengthen the Greenback against its counterparts.
In the daily digest of market movers, the INR closed marginally lower against the US Dollar at 83.5050, down 0.1% from the previous session’s close at 83.3725. Economic projections indicate India’s estimated expansion at 7% in FY25, driven by post-pandemic recovery in the capital expenditure cycle fueled by government spending and robust residential real estate demand, as stated by Tanvee Gupta Jain, chief India economist at UBS Securities.
Analysts at BNP Paribas Research, including Anuj Choudhary, anticipate a slight negative bias for the rupee due to the strong US Dollar amidst rising expectations of a delay in interest rate cuts by the US Federal Reserve, attributed to a tight job market.
Moreover, financial markets have priced in a reduced likelihood of a Fed rate cut for the September meeting, down from 68% before the Non-Farm Payrolls (NFP) data release, according to the CME FedWatch tool. Projections indicate a 3.4% year-on-year increase in the US headline CPI figure for May, with core CPI expected to rise 3.5% year-on-year during the same period.
From a technical perspective, the USD/INR pair maintains a constructive stance in the longer term. While the Indian Rupee trades flat, the bullish sentiment persists on the daily timeframe, with the pair holding above the descending trend channel upper boundary and the key 100-day Exponential Moving Average (EMA). Short-term consolidation is anticipated, with the 14-day Relative Strength Index (RSI) hovering lower towards the 50-midline.
Potential upward movements above 83.55 and 83.72 may pave the way to the psychological level of 84.00. Conversely, downside targets lie at the 83.30–83.35 region, followed by 83.00 and 82.78, indicating key support levels.
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