The Indian Rupee (INR) is experiencing downward pressure as demand for the US Dollar strengthens, attributed partly to the expiration of monthly currency futures contracts. However, expectations of foreign inflows may help limit the INR’s decline, particularly with Indian bonds set to join the JP Morgan Emerging Market Bond Index on June 28.
The US Dollar continues to advance, bolstered by rising US Treasury yields and indications from Federal Reserve (Fed) officials that there is no immediate rush to initiate a rate-cutting cycle.
Investor focus shifts to upcoming US economic data releases, including the revised Gross Domestic Product (GDP) for Q1 and the Personal Consumption Expenditure (PCE) Price Index later this week.
Key market movements impacting the INR include:
Foreign Inflows and Market Expectations: Foreign investors have poured approximately $10 billion into securities eligible for inclusion in the JP Morgan index, with expectations of further inflows reaching up to $30 billion as India’s index weighting grows to 10%.
Impact of Crude Oil Prices: The INR faces pressure from rising crude oil prices, influenced by anticipated summer demand. India’s position as the third-largest oil consumer globally underscores its sensitivity to oil price fluctuations.
Federal Reserve Insights: Fed Governor Michelle Bowman emphasized a steady policy rate stance to manage inflation, contrasting with Fed Governor Lisa Cook’s openness to rate cuts amid inflation control and labor market stabilization.
Economic Outlook and Structural Reforms: S&P Global Ratings maintains India’s growth forecast at 6.8% for FY25, highlighting supportive factors such as high interest rates and government spending in non-agricultural sectors. RBI Governor Shaktikanta Das anticipates sustained GDP growth of around 8%, driven by structural reforms like the Goods and Services Tax (GST).
Technical Analysis of USD/INR: The USD/INR hovers around 83.50, showing a broadening pattern on the daily chart indicative of increased volatility. The 14-day RSI suggests a bearish sentiment, with support near the 50-day EMA at 83.40 and potential resistance at 83.70 and 84.00.
Amid these dynamics, the INR’s resilience against the USD, influenced by foreign inflows and economic reforms, remains a pivotal factor in navigating current market conditions.
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