The Indian Rupee (INR) staged a recovery on Thursday, bolstered by a weakening US Dollar (USD). Wednesday’s strengthening of the INR was attributed to USD sales from foreign banks and potential intervention by the Reserve Bank of India (RBI). Investor sentiment was also influenced by expectations of two interest rate cuts by the Federal Reserve (Fed) this year, which exerted downward pressure on the Greenback, creating headwinds for the USD/INR pair.
Key economic indicators are on the horizon, including the US weekly Initial Jobless Claims and Balance of Trade, alongside the RBI’s interest rate decision on Friday, with analysts forecasting no change. Additionally, all eyes are on the US Nonfarm Payrolls data, with stronger-than-expected figures potentially bolstering the Greenback and limiting downside for USD/INR. However, India faces challenges from political shifts and subdued Purchasing Managers’ Index (PMI) data. Any alterations to India’s structural reforms could further impact the Indian Rupee.
In market movements, overseas investors withdrew $678 million from Indian equities on Wednesday alone, totaling $1.5 billion over two days. Benchmark Indian equity indices, the BSE Sensex and Nifty 50, rebounded on Wednesday, gaining approximately 3% each after a significant decline in the previous session.
The HSBC India Services PMI declined to 60.4 in May, marking the 34th consecutive month of expansion but registering the lowest level since December 2023.
HDFC bank economist Sakshi Gupta highlighted the potential volatility in the rupee and bond yields due to election results. The Bharatiya Janata Party (BJP) secured 240 seats in the Lok Sabha elections, followed by the Indian National Congress with 99 seats and the Samajwadi Party with 37 seats, according to the Election Commission of India’s (ECI) website.
In the US, the ISM Services PMI improved to 53.8 in May, surpassing estimates.
Market sentiment reflects a growing likelihood of a Fed rate cut in September, with traders pricing in a nearly 70% chance, up from 54.9% earlier in the week, according to the CME FedWatch tool.
In technical analysis, the USD/INR pair maintains a bullish outlook, breaking above the descending trend channel since mid-April and holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. Despite the 14-day Relative Strength Index (RSI) hovering around the neutral level, further consolidation is anticipated.
Initial support levels for the pair are identified at the resistance-turned-support level and the 100-day EMA around the 83.30-83.35 region. Conversely, upside barriers are anticipated near recent highs, with potential resistance at 83.62 and 83.72, while the 84.00 psychological level remains a key threshold.
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