The Indian Rupee (INR) traded flat on Tuesday, maintaining its position despite a modest recovery in the US Dollar (USD). The local currency faces ongoing pressure from month-end corporate demand for USD and significant foreign fund outflows from Indian equities. Additionally, the volatile Chinese Yuan and weaker market sentiment are contributing factors to the INR’s struggles.
However, extended declines in crude oil prices may provide some relief for the Indian Rupee, given India’s status as the world’s third-largest oil consumer, following the US and China. Investors are closely monitoring the upcoming US Federal Reserve (Fed) interest rate decision on Wednesday. The Fed is widely anticipated to maintain its interest rates in the range of 5.25%-5.50% for the eighth consecutive meeting in July. Market attention will then shift to the Indian HSBC Manufacturing PMI and US employment data, due to be released on Thursday and Friday, respectively.
Market Movers: Indian Rupee Faces Multiple Headwinds
“The Rupee has been continuously depreciating due to equity outflows and tracking Asian currencies. There is dollar demand from importers. Despite the fall in the US Dollar index, the Rupee is depreciating because the market is not focusing on it right now,” stated V R C Reddy, head of treasury at Karur Vysya Bank.
The final reading of the Indian HSBC Manufacturing Purchasing Managers Index (PMI) is expected to rise slightly to 58.5 in July from the previous 58.3.
“The case for a rate cut is strong, and the Fed will likely signal during the July meeting that a cut in September is possible,” noted Ryan Sweet, chief US economist at Oxford Economics. Investors are now anticipating the first rate cut by mid-September, with the CME FedWatch Tool indicating a 100% likelihood of at least a quarter-percentage-point cut by then.
Meanwhile, the US Dallas Fed Manufacturing Business Index fell to -17.5 in July, down from -15.1 previously.
Technical Analysis: Indian Rupee Shows Long-Term Bearish Trend
The Indian Rupee remains sideways in daily trading. The USD/INR pair maintains a constructive bias, staying above the key 100-day Exponential Moving Average (EMA) and following an uptrend line since June 3 on the daily chart. The 14-day Relative Strength Index (RSI) stands above the midline at 61.45, indicating bullish momentum in both the near and longer terms.
The all-time high of 83.85 serves as immediate resistance for the pair. Breaking above this barrier could push USD/INR to the psychological level of 84.00. Conversely, a bearish reversal may lead to the uptrend line around 83.70, with the next support level at 83.51, the low from July 12. Crucial support is seen at the 100-day EMA of 83.44.
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