The Indian Rupee (INR) experienced marginal declines on Monday despite a subdued US Dollar (USD). The local currency edged lower following the release of India’s HSBC Manufacturing Purchasing Managers Index (PMI), which rose to 58.3 in June from 57.5 previously, slightly below expectations of 58.5. Additionally, rising crude oil prices posed potential selling pressure on the INR, given India’s significant position as the world’s third-largest oil consumer.
Inflows from the inclusion of Indian bonds in the JPMorgan emerging market debt index were anticipated to inject substantial capital into the economy, bolstering the INR. Moreover, the USD showed vulnerability due to softer US Personal Consumption Expenditures (PCE) Price Index data for May, marking its lowest annual rate in over three years, which acted as a counterforce against the pair.
Looking ahead, market attention is focused on the US ISM Manufacturing PMI for June. Any indications of economic weakness in the US could further impact the USD, influencing trading dynamics for the USD/INR pair.
Market Highlights:
S&P Global reported that India’s Manufacturing PMI growth was underpinned by robust job creation, driven by strong demand conditions fueling expansions in new orders, output levels, and procurement activities.
Foreign currency market indicators suggested inflows, largely attributed to passive fund purchases of bonds, albeit below initial expectations, estimated at up to $2 billion spread over Thursday and Friday.
India’s equity benchmarks, the Sensex and the Nifty 50, concluded the first half of 2024 positively, with the Nifty 50 rising by 10.5% and the Sensex gaining 9.4%, reaching record highs of 24,174 and 79,671.58, respectively.
The US PCE Price Index recorded a 2.6% year-over-year increase in May, aligning with market forecasts. Core PCE inflation also rose by 2.6% year-over-year, reflecting anticipated trends.
San Francisco Fed President Mary Daly indicated that while current monetary policy strategies are effective, the timing of potential interest rate adjustments remains uncertain, contingent upon inflation trends.
Technical Analysis:
The USD/INR pair exhibited a softer tone during the trading session. Despite maintaining bullish sentiments above the key 100-day Exponential Moving Average (EMA) on the daily timeframe, the pair could face potential downside risks if it breaches below this critical support level. The 14-day Relative Strength Index (RSI) remained below the 50-midline, indicating potential for further consolidation or downward movement.
Notably, a breakout above 83.65, observed on June 26, could propel the pair towards the all-time high of 83.75, with continued buying momentum possibly pushing towards the psychological barrier of 84.00. Conversely, key support levels lie at 83.30-83.35, including the 100-day EMA, with further downside exposing the round figure support at 83.00.
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