The Indian Rupee (INR) experienced further weakening on Wednesday, influenced by a cautious market sentiment alongside several external and domestic factors. A modest rebound of the US Dollar (USD) and the hawkish stance from the US Federal Reserve (Fed) contributed to the downward pressure on the INR. Additionally, the looming uncertainty surrounding India’s upcoming general election has cast a shadow on the currency, with analysts suggesting a potential boost to the INR in the event of a victory for Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP).
Investors exhibited a preference to adopt a wait-and-see approach ahead of significant economic data releases from both India and the US later in the week. Notably, market attention is drawn to the first reading of the US Gross Domestic Product (GDP) for Q1, scheduled for Thursday, and the US Core Personal Consumption Expenditures Price Index (Core PCE) for April, set to be released on Friday. Any indication of higher-than-anticipated inflation in the US could diminish expectations of a rate cut by the Fed, thereby bolstering the USD. Concurrently, India’s GDP data for the March quarter of the previous financial year (Q4 FY24) is anticipated to be disclosed on Friday, further shaping market sentiment.
In terms of market movement, foreign investors withdrew a substantial $2.8 billion from Indian equities in May, citing concerns surrounding the impending election. This development, coupled with a slight downturn in the benchmark Indian equity indices, the BSE Sensex and Nifty 50, underscores the cautious stance adopted by market participants.
Furthermore, forecasts from the International Monetary Fund (IMF) and Nomura project India’s GDP growth at 7% for the year 2024, reflecting a modest outlook amidst prevailing uncertainties.
From a technical perspective, the USD/INR pair maintains a bearish trajectory on the daily chart, supported by its position below the key 100-day Exponential Moving Average (EMA). The downward momentum is reinforced by the 14-day Relative Strength Index (RSI), indicating bearish sentiment. Notably, the resistance-turned-support level at 83.20 presents a significant barrier for USD/INR buyers, with a decisive break above this level potentially triggering a rally towards higher levels.
Conversely, a breach below the crucial support level at 83.00 could precipitate further downside movement, with subsequent targets at 82.78 and 82.65.
Conclusion:
The Indian Rupee’s performance remains influenced by a complex interplay of global economic factors and domestic developments. As market participants await key data releases and election outcomes, cautious sentiment prevails, contributing to the ongoing depreciation of the INR against the USD.
