The Indian Rupee (INR) extended its downward trajectory on Tuesday, driven by month-end demand for the US dollar (USD) from importers. Monday witnessed the INR experiencing its most significant intraday decline in over two weeks, as a weakening trend among major Asian currencies exerted selling pressure on local currencies. Nonetheless, the persistent confidence in India’s economic stability continues to underpin Indian equities, potentially offering support to the INR in the short term.
Market observers are closely monitoring the Federal Reserve’s (Fed) interest rate decision and ensuing press conference scheduled for Wednesday. A cautious stance from Fed Chair Jerome Powell could further bolster the Greenback, potentially influencing currency dynamics. Additionally, the release of the ISM Manufacturing PMI data and the US employment report later in the week may provide insights into the interest rate outlook. On the domestic front, India’s HSBC Manufacturing PMI for April is slated for release on Thursday.
Indian Rupee’s Weakness Despite Positive Economic Indicators
Despite a positive economic outlook, the Indian economy is projected to grow by over 7% in the current financial year, according to the National Council of Applied Economic Research (NCAER) report on Monday. Notably, while the Nifty experienced a 2.5% decline in January 2023 amid Foreign Institutional Investors (FIIs) sell-off, it has managed to secure a 0.4% gain for April.
India’s foreign exchange reserves witnessed a contraction of $2.83 billion to $640.33 billion as of April 19, as reported by the Reserve Bank of India (RBI). Furthermore, expectations suggest that India’s HSBC Manufacturing PMI will likely remain unchanged at 59.1 in April.
The US Federal Reserve (Fed) is widely expected to maintain interest rates at a more than two-decade high following their meeting on Wednesday. Financial markets anticipate only one Fed rate cut in 2024, a notable deviation from the initial projection of approximately six quarter-point cuts at the start of the year.
USD/INR Retains Bullish Momentum in the Long Term
Despite current weakness, the Indian Rupee continues to trade under pressure against the US dollar (USD). The USD/INR maintains its bullish outlook intact, supported by its position above the critical 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is further substantiated by the 14-day Relative Strength Index (RSI), which remains in bullish territory around 55, indicating a likelihood of the support zone holding rather than breaking.
Near-term resistance for the pair is anticipated around the April 15 high at 83.50. Sustained bullish movement could potentially propel USD/INR towards the next upside target near the all-time high of 83.72, with the psychological round mark of 84.00 looming thereafter. Conversely, a decisive breach below the April 26 low at 83.23 may prompt a retracement towards 83.15, marked by the confluence of the 100-day EMA and the April 10 low. Further downside could see support near the January 15 low at 82.78.
