The Indian Rupee (INR) remained relatively stable on Monday, despite a weaker US Dollar (USD). After hitting an all-time low last week, the INR faces limited upside potential, hindered by persistent USD demand from oil importers and outflows from local equities. Rising geopolitical tensions in the Middle East could bolster the safe-haven appeal of the USD ahead of key US economic events this week. Meanwhile, the Reserve Bank of India (RBI) is expected to continue its interventions in the foreign exchange market to curb volatility, which may further limit the INR’s appreciation in the near term.
The Federal Reserve’s (Fed) interest rate decision, scheduled for Wednesday, will be a focal point. No change in rates is anticipated, but investors will scrutinize Fed Chair Jerome Powell’s comments for insights on future monetary policy. Any dovish statements or speculation about a potential rate cut in September could weaken the USD. Additionally, attention will shift later in the week to the Indian HSBC Manufacturing PMI on Thursday and the US Nonfarm Payrolls report for July on Friday.
Market Digest: Indian Rupee Faces Multiple Challenges
On Monday, the RBI likely sold USD to support the INR, which remained near its record low, according to five traders who spoke to Reuters. The USD/INR pair is expected to trend higher, with support moving up to 83.45 and resistance at 83.85, noted Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
Foreign investors have sold approximately $1 billion in Indian equities since July 23, following the Indian government’s proposal to increase taxes on equity investment profits and derivative transactions.
Geopolitical tensions escalated over the weekend with an attack in the Golan Heights, raising concerns about a potential conflict between Israel and Hezbollah. Israel has accused Hezbollah of the attack, which resulted in at least 12 fatalities, including children. Hezbollah has denied involvement, according to BBC reports.
US economic data showed the Personal Consumption Expenditures (PCE) Price Index rose by 2.5% year-over-year in June, down slightly from 2.6% in May and aligned with market expectations. On a monthly basis, the PCE Price Index increased by 0.1% in June, following no change in May. Core PCE inflation, excluding food and energy prices, climbed to 2.6%, matching May’s figure and surpassing the forecast of 2.5%. The Core PCE Index rose 0.2% month-over-month, up from 0.1% in May. Additionally, the University of Michigan Consumer Sentiment Index improved to 66.4 in July, exceeding estimates and the previous reading of 66.
Technical Analysis: INR’s Bearish Trend Persists
The INR’s performance remains flat, with the USD/INR pair continuing its bullish trend. The uptrend line and the 100-day Exponential Moving Average (EMA) on the daily chart suggest a prevailing bullish sentiment. The 14-day Relative Strength Index (RSI) is above the midline at 58.90, indicating a long-term bullish trend.
If bullish momentum persists, the USD/INR could breach the all-time high of 83.85, potentially reaching the psychological level of 84.00. Initial support is seen around the uptrend line at 83.70. Should bearish pressure continue, the next support levels are at 83.51 (a July 12 low) and 83.44 (the 100-day EMA).
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