The Indian Rupee (INR) demonstrated a recovery on Monday, buoyed by the weakness observed in the US dollar (USD). The previous week had seen the INR facing its most significant weekly downturn in over two months, largely influenced by heightened demand for USD from importers as the month drew to a close. Nevertheless, the potential decline in the INR is expected to be contained, as the Reserve Bank of India (RBI) is poised to intervene to prevent excessive depreciation.
Economic indicators reveal that India’s Manufacturing Purchasing Managers Index (PMI) for May fell short of expectations, slipping to 57.5 from April’s figure of 58.4. Despite this, the impact on the INR was minimal, as market participants await the outcome of India’s general elections, with vote counting scheduled for June 4. Analysts anticipate a strengthening of the Indian Rupee this week, following exit polls suggesting a victory for Prime Minister Narendra Modi’s Bharatiya Janata Party, potentially securing a third term.
Meanwhile, the upcoming release of the ISM Manufacturing PMI in the US holds significance. A stronger-than-anticipated reading could temper expectations of a Federal Reserve (Fed) rate cut this year and bolster the Greenback.
In market developments, Indian equity benchmark indices surged to record highs on Monday, with the Nifty 50 climbing 3.58% and the Sensex gaining 3.55%, as reported by the Indian Express. According to HDFC Securities FX research analyst, Dilip Parmar, the Indian rupee is poised for gains fueled by dollar inflows from foreign funds investing in domestic equities and debt.
Exit polls project a favorable outcome for the governing NDA, with most forecasts indicating a two-thirds majority in the 543-member lower house of parliament.
Additionally, the 10-year Indian government bond yield experienced its sixth consecutive weekly decline, recording its largest monthly loss in four years.
In the US, the Personal Consumption Expenditures (PCE) Price Index met expectations, while Personal Income rose by 0.3% and Personal Spending increased by 0.2% in April. The upcoming US ISM Manufacturing PMI is anticipated to improve to 49.8 in May from 49.2 in April.
From a technical perspective, the USD/INR pair maintains a bullish outlook, supported by trading above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Resistance levels are identified at 83.40, 83.54, and 83.72, while initial support lies at the 100-day EMA around 83.21, with a critical level at 83.00.
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