On Friday, the Indian Rupee (INR) posted modest gains as the U.S. Dollar (USD) weakened. The currency had hit an all-time low on Thursday due to month-end USD demand and foreign outflows from India. Forex traders noted that recent foreign fund withdrawals from Indian equities, following the government’s decision to raise capital gains tax on equity investments and derivatives, could continue to pressure the INR in the short term.
Despite these challenges, potential intervention by the Reserve Bank of India (RBI) might limit further declines in the INR, supported by record-high foreign exchange reserves. Investors are awaiting the release of the U.S. Personal Consumption Expenditures (PCE) Price Index data for June, with expectations of a 0.1% month-over-month increase in headline PCE and a slight decrease in Core PCE inflation from 2.6% to 2.5% year-over-year. Softer PCE data could influence the Federal Reserve to consider lowering its key interest rate as early as September, potentially weakening the USD.
Market Movers and Technical Analysis: INR Rebounds but Faces Limitations
India’s Economic Affairs Secretary, Ajay Seth, hinted at possible caps on local bonds if inflows surge, suggesting the government might conduct additional bond buybacks depending on market conditions. “But that doesn’t mean every future security has to be fully accessible. Incremental changes can be made to monitor foreign fund inflows,” he stated.
Importers have been actively buying USD to capitalize on lower crude oil prices, according to forex traders. Recent U.S. economic data showed mixed results: GDP grew at a 2.8% annualized pace, surpassing forecasts of 2%, while Initial Jobless Claims for the week ending July 20 increased to 235K, slightly below the expected 238K. Durable Goods Orders fell 6.6% month-over-month in June, missing the 0.3% increase forecast, though Core Durable Goods ex Transportation rose 0.5% month-over-month, better than the anticipated 0.2%.
The CME FedWatch Tool indicates a 92.8% probability that the Federal Reserve will maintain its benchmark interest rate between 5.25% and 5.50% at its upcoming July meeting.
Technical Outlook: INR Remains Weak Long-Term
The INR shows mild gains on the day, yet the USD/INR pair remains on an uptrend, trading above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) stands at 62.45, indicating bullish momentum. Immediate resistance is seen at the all-time high of 83.85, with potential gains pushing the pair toward the 84.00 psychological level.
Conversely, a decline below 83.65 (July 23 low) could see the pair fall to 83.51 (July 12 low), with further support at 83.42, the 100-day EMA.
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