The Indian Rupee (INR) showed resilience in Wednesday’s trading session, bouncing back from recent losses attributed to political uncertainties. Tuesday witnessed a notable sell-off in Indian equities and the INR amid apprehensions regarding a clear victory for the BJP-led government. However, the INR managed to trim its losses as sentiments shifted, buoyed by a decline in crude oil prices and optimism surrounding foreign fund inflows following India’s inclusion in the JPMorgan bond indices.
While recent economic data revealed a slowdown in India’s services sector growth, with the HSBC India Services PMI registering a five-month low in May, the impact on the INR remained subdued. Despite the moderation in services activity, the index continued its expansion streak for the 34th consecutive month, albeit at a slower pace compared to previous months.
Investor focus remained on forthcoming data releases, including the Indian HSBC Services PMI and the US ISM Services PMI and ADP Employment Change. Stronger-than-expected readings from the US could potentially bolster the US Dollar (USD), exerting pressure on the USD/INR pair.
Political developments also influenced market sentiment, with Modi’s National Democratic Alliance (NDA) securing a substantial victory in the general elections. While the NSE Nifty 50 and the S&P BSE Sensex witnessed sharp declines on Tuesday amid initial uncertainty, Modi’s coalition has adequate seats to form a majority government, signaling continuity in leadership and stability.
Jonathan Koh, Economist and FX Analyst at Standard Chartered, expressed optimism regarding the INR’s near-term outlook, citing strong service exports, index flows, and FX reserves as supportive factors.
From a technical perspective, the USD/INR pair exhibited bullish momentum, breaking above its descending trend channel on the daily chart and surpassing the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) signaled bullish sentiment, further bolstering the case for buyers.
Immediate resistance for the pair is seen at 83.62, followed by 83.72 and the psychological level of 84.00. On the downside, support levels include 83.40, the 100-day EMA at 83.20, and subsequent levels at 83.00 and 82.78.
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