Despite a weaker US Dollar (USD), the Indian Rupee (INR) edged lower on Wednesday, retracing gains from the previous session. Tuesday’s strength was bolstered by USD sales by state-run banks and anticipated foreign inflows into Indian bonds and equities. Analysts foresee a potential boost to the INR in the near term following India’s upcoming inclusion in the JPMorgan emerging market debt index.
The USD weakened after a disappointing US Retail Sales report, raising expectations of impending interest rate cuts by the Federal Reserve (Fed). However, the INR’s upside could be capped by a rise in crude oil prices, given India’s substantial oil consumption as the world’s third-largest consumer after the US and China.
Economic calendars for both India and the US were empty on Wednesday. Market participants await key indicators such as the Indian HSBC Manufacturing and Services PMI, as well as the Reserve Bank of India (RBI) Meeting Minutes later in the week. Meanwhile, US economic data on the S&P Global PMI reports will also influence market sentiment.
Indian equity indices reached record highs on Tuesday, with the BSE Sensex closing at 77,301, up 308 points, and the Nifty50 at 23,558, up 92 points.
Sajal Gupta, head of forex and commodities at Nuvama Wealth Management, suggested that the INR could strengthen beyond 83.20 once inflows from India’s inclusion in the JPMorgan emerging market debt index begin later this month.
In technical analysis, the USD/INR pair maintains a constructive outlook in the longer term, supported by trading above the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) suggests potential for consolidation or further downside, currently at 48.0.
Looking ahead, sustained losses below the 100-day EMA at 83.25 could push the pair towards the psychological level of 83.00, followed by 82.78 observed on January 15.
Conversely, resistance levels for the pair are noted at 83.55, marking the high from June 18, and further at 83.72 (high of April 17), potentially leading towards the round mark at 84.00.
In conclusion, while the INR faces short-term pressures, its outlook remains buoyed by economic developments and global market dynamics, influencing its trajectory against the USD.
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