The Indian Rupee (INR) slipped into negative territory on Friday, weighed down by likely foreign fund outflows from domestic equity markets and a surge in crude oil prices. Adding to the pressure, India’s consumer inflation unexpectedly fell to a near six-year low in April, reinforcing expectations that the Reserve Bank of India (RBI) may prolong its rate-cutting cycle.
Despite these headwinds, a broadly softer US Dollar and signs of progress in a multi-phase trade agreement between India and the United States are offering some short-term support to the rupee. Market participants remain focused on upcoming comments from several Federal Reserve officials—Alberto Musalem, Jeff Schmid, and Lisa Cook—scheduled for later in the day.
Rupee Dips as Global Factors Weigh
In terms of economic data, India’s manufacturing and services sectors continued to show strong momentum. The HSBC India Manufacturing Purchasing Managers’ Index (PMI) edged up to 58.3 in May from 58.2, surpassing expectations of 58.0. Meanwhile, the Services PMI climbed to 61.2 in April, up from 58.7 in March. The Composite PMI also rose to 61.2, indicating robust overall economic activity.
“India’s flash PMI indicates another month of strong economic performance. Growth in production and new orders among manufacturing firms remains robust, despite a marginal cooling from April,” noted Pranjul Bhandari, Chief India Economist at HSBC.
India’s Commerce and Industry Minister Piyush Goyal added optimism, stating that the first phase of the India-US trade deal could be finalized before July.
In the United States, recent macroeconomic indicators have shown resilience. The S&P Global Composite PMI rose to 52.1 in May from 50.6, with both the Manufacturing and Services PMIs registering a reading of 52.3. Initial jobless claims for the week ending May 17 dipped to 227,000, beating expectations, although continuing claims rose to 1.903 million, according to the Department of Labor.
USD/INR Breaks Above Key Technical Barrier
On the technical front, the USD/INR pair resumed its upward trajectory, crossing above the 100-day Exponential Moving Average (EMA) on the daily chart. This breakout, along with the 14-day Relative Strength Index (RSI) holding above the midline, signals potential for further upside in the pair.
The immediate resistance level lies at 86.10, the May 22 high. A sustained move above this level could open the door for a rally toward 86.61, the peak from April 10.
Conversely, key support is found at 85.35, the May 20 low. A break below this mark may indicate that bearish momentum remains, potentially pulling the pair down to 84.84—the low from May 12. Further losses could bring the pair toward 84.15, the lower boundary of the prevailing trend channel.
Despite robust domestic PMI data, the rupee’s near-term trajectory appears vulnerable to external pressures and RBI rate expectations, leaving USD/INR bulls with the upper hand for now.
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