The Indian Rupee (INR) extended its downside on Tuesday, pressured by a strengthening US Dollar (USD) and broader global economic concerns. A notable factor contributing to the INR’s weakness is the softening of the Chinese Yuan, prompted by slower-than-expected economic growth in China for the second quarter, which has cast a shadow over Asian currencies.
Despite these challenges, India’s substantial foreign fund inflows and the rising odds of a potential US Federal Reserve (Fed) rate cut in September could offer some support to the local currency. Additionally, declining crude oil prices are favorable for the INR, considering India’s status as the third-largest oil consumer globally, following the United States and China. Investors are also keeping a close eye on the US Retail Sales data for June and an upcoming speech by Federal Reserve’s Adriana Kugler later on Tuesday.
Daily Digest Market Movers: Indian Rupee Remains Sensitive to Global Factors and Risk Sentiment
Recent data indicates that India’s Wholesale Price Index (WPI) inflation rose to a 16-month high of 3.36% year-on-year in June, up from 2.61% in May. Although this was slightly below the expected 3.50%, it highlights rising inflation pressures primarily driven by increased prices of food articles, manufacturing of food products, crude petroleum & natural gas, mineral oils, and other manufacturing sectors.
The official press release attributes the positive rate of inflation in June 2024 primarily to these sectors. Notably, Indian WPI Food inflation surged to 10.87% year-on-year in June from 9.82% in May, while WPI Fuel inflation moderated to 1.03% from 1.35% earlier.
Federal Reserve Chair Jerome Powell’s comments on Monday emphasized the US economy’s strong performance in recent years and reiterated that the central bank would not wait for inflation to reach the 2% annual target before taking action. Furthermore, Federal Reserve Bank of San Francisco President Mary Daly acknowledged significant progress on inflation but refrained from providing specific timing for rate cuts.
Technical Analysis: USD/INR Sticks to Consolidation in the Short-Term
The USD/INR pair remains in a consolidation phase in the short term. The pair continues to trade above the critical 100-day Exponential Moving Average (EMA) on the daily chart, signaling a bullish trend. The 14-day Relative Strength Index (RSI) also points higher above 56.40, suggesting a favorable outlook for further upside.
In recent trading, the pair has remained within its month-long range since March 21. Breaking past the resistance at the upper boundary of this range at 83.65 could pave the way for a move back to the all-time high of 83.75. The next significant resistance level would be the psychological 84.00 mark.
Conversely, should bearish momentum prevail, the initial support target would be around the 100-day EMA at 83.37. Further downside could see the pair testing the 83.00 round figure, followed by the 82.82 level, marking the low of January 12.
Conclusion
The Indian Rupee’s near-term performance will likely remain influenced by a combination of global economic trends, US monetary policy expectations, and domestic inflation data. While significant foreign fund inflows and potential Fed rate cuts may provide some relief, broader market dynamics and technical factors suggest a cautious outlook for the INR. As investors closely monitor upcoming economic indicators and central bank communications, the USD/INR pair’s movement will be a key barometer of market sentiment and economic stability.
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