The Indian Rupee (INR) saw a rise on Monday, driven by expectations that the US Federal Reserve (Fed) might reduce interest rates in September. The anticipation of lower US interest rates could lead to increased capital flows into higher-yielding emerging market assets, thereby benefiting the INR. Additionally, a decline in crude oil prices from a four-week high has supported the local currency, mitigating depreciation pressures. As India is the world’s third-largest oil importer and consumer, lower oil prices are a significant economic boon.
Despite these positive developments, renewed demand for the US Dollar (USD) amid a cautious market mood could undermine the INR. Investors are now keenly awaiting the testimony of Fed Chair Jerome Powell on Tuesday and the release of the US Consumer Price Index (CPI) inflation data for June on Thursday.
Daily Digest Market Movers: INR Strengthens Amid Positive Economic Outlook
“Asian FX took a breather on the back of broad US Dollar weakness… the risk for Asian currencies, though, remains skewed to the downside, with the Fed staying patient,” said Lloyd Chan, senior currency analyst at MUFG Bank.
On Monday, Indian benchmark indices opened lower, with the BSE Sensex slipping 161 points to 79,883.5 points, while the Nifty50 index fell slightly by 0.06% to 24,310. Despite this, Foreign Portfolio Investors (FPI) continued to show strong buying interest in Indian equities, with net inflows of about $1 billion in the first week of July 2024, according to depository data.
In the US, Nonfarm Payrolls (NFP) exceeded expectations, adding 206,000 net new jobs in June, as reported by the US Bureau of Labor Statistics (BLS) on Friday. However, the previous month saw a significant downward revision to 218,000 from the initial 272,000. US Average Hourly Earnings declined to 3.9% year-on-year in June, down from 4.1%, while the Unemployment Rate rose to 4.1% for the first time since December 2021.
Financial markets are now pricing in a nearly 77% chance of a Fed rate cut in September, up from 70% before the US employment report, according to the CME FedWatch tool.
Technical Analysis: USD/INR Oscillates Within a Range
The Indian Rupee traded stronger on the day, with the long-term uptrend of the USD/INR pair persisting above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. In the near term, the pair has been confined within a familiar trading range since March 21, with further consolidation looking favorable as the 14-day Relative Strength Index (RSI) hovers around the 50-midline, indicating neutral momentum.
The first bullish target for USD/INR is 83.60, the high of July 4. Further resistance is seen at the record high of 83.75. A decisive break above this level could lead to a rally to the psychological level of 84.00. On the downside, potential support is located at 83.35, the 100-day EMA. A breach of this level would expose the 83.00 mark, followed by 82.82, the low of January 12.
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