The Indian Rupee (INR) traded sideways on Friday, despite the modest recovery of the US Dollar (USD). This stability follows the Reserve Bank of India (RBI) Governor Shaktikanta Das’s announcement of the second bi-monthly monetary policy for the financial year 2024-25 (FY25) on Wednesday. The RBI maintained the repo rate at 6.50% and continued its “withdrawal of accommodation” stance. The RBI Monetary Policy Committee (MPC) decided to hold the key policy rate for the eighth consecutive meeting in June 2024, last adjusting the benchmark interest rate in February 2023.
Impact of USD Demand and Equity Outflows
Renewed USD demand from local importers and Indian equity outflows is expected to pressure the INR in the near term, despite easing political uncertainties following India’s election. Conversely, potential intervention by the Reserve Bank of India (RBI) might support the Indian Rupee and limit the upside for the USD/INR pair.
Investors are closely monitoring US employment data, including the Nonfarm Payrolls (NFP), Unemployment Rate, and Average Hourly Earnings for May. Softer-than-expected data could fuel speculation of a Federal Reserve (Fed) rate cut, weakening the Greenback and creating a headwind for USD/INR.
Market Movers and RBI Policy Highlights
RBI Governor Shaktikanta Das emphasized that the MPC will focus on withdrawing accommodation to ensure inflation aligns with targets while supporting growth. He reiterated the RBI’s commitment to a disinflationary policy, aiming to bring inflation to a 4% target.
Key projections include India’s Gross Domestic Product (GDP) growth estimated at 7.2% for FY24 and Consumer Price Index (CPI) inflation for 2024-25 projected at 4.5%. Sensex surged over 800 points to 75,902, and Nifty 50 rose 240 points to 23,062 as the RBI raised its FY25 GDP growth forecast.
India’s foreign currency reserves fell by $2.027 billion to $646.673 billion at the end of May 24, after a notable increase the previous week.
Technical Analysis: USD/INR Outlook
The Indian Rupee remains steady, with the USD/INR pair maintaining a constructive outlook on the daily timeframe. The pair held above the descending trend channel’s upper boundary and the key 100-day Exponential Moving Average (EMA). Further consolidation is possible as the Relative Strength Index (RSI) hovers near the 50-midline, indicating a neutral tone.
In a bullish scenario, immediate resistance for USD/INR is at the June 5 high of 83.55. Additional upside targets include the April 17 high of 83.72, followed by the 84.00 round mark.
The first downside support for USD/INR lies in the 83.30-83.35 zone, representing the resistance-turned-support level and the 100-day EMA. The key psychological level is at 83.00, with a break below paving the way to the January 15 low of 82.78.
As the market awaits further cues from US employment data and potential RBI intervention, the Indian Rupee is set to navigate these mixed influences with cautious optimism.
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