The Indian Rupee (INR) gained ground on Tuesday, rebounding from its all-time low reached in the previous session. This recovery came after Finance Minister Nirmala Sitharaman presented her seventh consecutive Union Budget for the 2024-25 fiscal year at the Budget Session of Parliament. The market’s anticipation that the Union Budget 2024 would stimulate economic consumption played a significant role in strengthening the INR. Additionally, robust inflows into Indian equity markets and a drop in crude oil prices further bolstered the currency.
However, several factors continue to challenge the INR. A weak Chinese Yuan and sustained demand for the US Dollar (USD) from local corporations and oil companies pose risks. Despite these pressures, the downside of the Indian Rupee might be curtailed as the Reserve Bank of India (RBI) is expected to intervene to prevent excessive depreciation.
Market participants are also monitoring key economic indicators from the US, including Existing Home Sales and the Richmond Fed Manufacturing Index, both due on Tuesday. Later this week, attention will turn to the preliminary US S&P Global Purchasing Managers Index (PMI) for July, the second-quarter Gross Domestic Product (GDP) figures, and the Personal Consumption Expenditures Price Index (PCE) data for June, scheduled for release on Wednesday, Thursday, and Friday, respectively.
Daily Digest: Market Movers for the Indian Rupee
Union Budget Highlights:
Inflation and Growth: Finance Minister Sitharaman noted that while inflation remains slow and stable, significant downside risks to growth and upside risks to inflation persist.
Agriculture and Rural Development: A provision of ₹1.52 trillion has been allocated for agriculture and allied sectors, and ₹2.66 trillion for rural development.
Job Creation: The government will allocate ₹2 trillion ($24 billion) over the next five years for job creation, offering incentives to both employees and employers in the manufacturing sector.
Housing: Under PM Awas Yojana, Urban 2.0, ₹10 lakh crore will be invested to address the housing needs of the urban poor and middle class.
Overseas Investments: The government will promote the Indian Rupee for overseas investments by simplifying rules and regulations for EDI.
Customs Duties: Customs duty on gold and silver will be reduced to 6%, and on platinum to 6.4%.
Capital Gains Tax: Long-term capital gains on all financial and non-financial assets will be taxed at 12.5%, with an exemption limit set at ₹1.25 lakh.
Infrastructure Spending: Infrastructure spending remains at ₹11.1 trillion, constituting 3.4% of GDP. Additionally, ₹1.5 trillion has been allocated for interest-free loans to states for infrastructure development.
Securities Transaction Tax: The securities transaction tax on futures and options will be raised to 0.02% and 0.01%, respectively. Short-term gains on some financial assets will attract a 20% tax, with a proposal to reduce the corporate tax rate on foreign companies.
Foreign Exchange Reserves: India’s foreign exchange reserves increased by nearly $15 billion in the first half of July, reaching a record high of $667 billion.
Economic Growth: The Indian economy is projected to grow by 6.5% to 7% this year, with expectations of surpassing 7% growth in the coming years.
US Federal Reserve Insights:
New York Fed President John Williams and Fed Governor Christopher Waller indicated that the US central bank is nearing its target for rate cuts.
Traders in Fed Funds Futures markets have fully priced in rate cuts in September, with at least two quarter-point reductions expected in 2024.
Technical Analysis: USD/INR Outlook
The Indian Rupee saw modest gains on the day. The USD/INR pair remains bullish on the daily timeframe, having confirmed a breakout above a month-long trading range and maintaining its position above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) is above 60.00, indicating bullish momentum.
The pair’s first resistance level is near the all-time high of 83.77. Breaking this level could push the pair to the psychological level of 84.00. Conversely, sustained trading below the resistance-turned-support level at 83.65 may attract enough selling pressure to lower USD/INR to 83.51, the low of July 12. Further decline could see the pair reaching 83.40, aligning with the 100-day EMA.
As the market navigates through these developments, the interplay between domestic fiscal policies and global economic indicators will continue to shape the INR’s trajectory.
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