On Friday, the Indian Rupee (INR) faced downward pressure against the US Dollar (USD), influenced by ongoing USD strength despite notable economic indicators from India. The country’s Wholesale Price Index (WPI) inflation for May surged to 2.61% year-on-year, surpassing market expectations and reflecting an increase from the previous reading of 1.26%.
The INR’s depreciation was compounded by expectations of a more restrained rate-cutting stance by the US Federal Reserve (Fed), which now anticipates only a single 25 basis points (bps) reduction this year instead of the previously expected two cuts. Additionally, elevated crude oil prices, crucial given India’s status as the third-largest global consumer of oil, further tempered optimism for the local currency.
Market observers underscored the pivotal role of the Reserve Bank of India (RBI) in stabilizing the INR and averting significant depreciation through potential interventions.
Later in the day, investor attention shifted to key events in the US, including the preliminary Michigan Consumer Sentiment report and a speech by Federal Reserve Bank of Chicago President Austan Goolsbee.
Market Movements and Economic Insights
In financial markets, state-run banks were observed facilitating USD transactions, possibly on behalf of the RBI, with efforts aimed at maintaining stability rather than fostering INR appreciation, according to a foreign exchange trader at a private bank.
Meanwhile, India’s benchmark indices closed positively, with the S&P BSE Sensex gaining 204.33 points to reach 76,810.90, and the NSE Nifty rising 75.95 points to settle at 23,398.90 from its previous close.
US Economic Indicators
Across the Pacific, the US Producer Price Index (PPI) for May revealed a 2.2% year-on-year increase, slightly below market expectations, while the core PPI remained stable at 2.3%. Monthly figures indicated a 0.2% decline in the PPI and no change in the core PPI.
Additionally, the US weekly Initial Jobless Claims for the week ending June 6 rose to 242,000, exceeding the market consensus of 225,000.
Fed Chair Jerome Powell’s remarks emphasized the cautious approach towards rate cuts, stressing the need for sustained improvements in inflation metrics.
Technical Outlook and Market Analysis
From a technical perspective, the USD/INR pair continued its upward trajectory throughout June, supported by sustained trading above the 100-day Exponential Moving Average (EMA) and the upper boundary of a descending trend channel on the daily timeframe. The 14-day Relative Strength Index (RSI) indicated bullish momentum, hovering around 55.50.
Potential resistance levels for the USD/INR pair included 83.60 and 83.72, with further upside targets at the psychological barrier of 84.00. Conversely, critical support was identified in the 83.30–83.35 zone, marked by the confluence of the 100-day EMA and the upper boundary of the descending trend channel. A breach below this support area could lead to further declines towards 83.00 and 82.78.
In conclusion, the Indian Rupee faced downward pressure against the US Dollar amid economic data releases and expectations surrounding US monetary policy, with the RBI’s interventions pivotal in mitigating volatility in the currency markets.
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