On Wednesday, the Indian Rupee (INR) exhibited a modest uptick supported by significant USD sales from major foreign banks and a dip in Treasury yields. Concurrently, the sustained positive sentiment in Indian equities is poised to bolster the INR while exerting pressure on the currency pair.
The INR’s ascent was notably propelled by the NIFTY50 index’s surge to a nearly three-week pinnacle above 22,600 on Tuesday, propelling the Indian Rupee to a commensurate three-week zenith against the USD. However, the prevailing cautious stance adopted by the US Federal Reserve (Fed) looms as a potential counterweight, favoring the US Dollar (USD) and potentially tempering the downside for the currency pair. Fed officials remain resolute in their stance, preferring to await more robust signals indicating a slackening in the labor market and further strides toward curbing inflation, aligning with their 2% target.
Investor attention pivots towards the FOMC Minutes and the forthcoming speech by a Fed representative, Goolsbee, scheduled for Wednesday. While Thursday sees the closure of Indian foreign exchange and debt markets, the release of India’s preliminary HSBC Manufacturing and Services PMI for May commands focus, alongside the inaugural reading of the US S&P Global PMI for the same period.
In other market developments, overseas investors offloaded Indian equities worth over $3 billion in May, marking the most substantial monthly outflow since January 2023. Meanwhile, the United Nations (UN) revised its growth projections for India in 2024 upwards to 6.9%, a notable uptick from the 6.2% forecasted in January, with a further growth of 6.6% anticipated in 2025. Moreover, the anticipated inclusion of India’s government bonds in JP Morgan’s GBI-EM index from June 2024 onwards is poised to attract significant inflows, estimated at approximately $23 billion, thereby augmenting investor confidence in India’s financial markets.
Key insights from Fed officials include remarks by Atlanta Fed President Raphael Bostic, advocating for prudence in the Fed’s initial rate maneuver, emphasizing the necessity for a longer wait to ensure inflation stability. Fed Governor Christopher Waller echoes this sentiment, asserting the need for sustained positive inflation metrics before contemplating adjustments in borrowing costs, while also signaling skepticism towards further rate hikes.
Technical analysis indicates vulnerability in the USD/INR pairing on the daily chart, with the pair hovering near the critical 100-day Exponential Moving Average (EMA). A breach below this EMA, coupled with the neckline of a Head and Shoulders pattern established since March 21, could reignite a bearish outlook. The 14-day Relative Strength Index (RSI) remains in bearish territory around 43.40, reinforcing seller dominance.
A decisive break below the confluence of the neckline and the 100-day EMA within the 83.20–83.25 zone may expose the psychological support level at 83.00, followed by the January 15 low at 82.78. Conversely, an upside breach of the right shoulder of the Head and Shoulders pattern at 83.54 could invalidate the bearish pattern, potentially paving the way for a climb towards the April 17 high at 83.72, with further resistance anticipated at 84.00.
