The Indian Rupee (INR) weakened on Thursday, ending its two-day winning streak due to a modest recovery of the US Dollar (USD). The Reserve Bank of India (RBI) Governor Shaktikanta Das announced the bi-monthly monetary policy statement, maintaining the repo rate at 6.50% and the “withdrawal of accommodation” stance. This marks the ninth consecutive meeting with no change in the key policy rate since the last adjustment in February 2023.
The INR faced immediate pressure following the RBI’s decision, compounded by escalating geopolitical tensions in the Middle East, increased USD demand from local importers, and rising crude oil prices. Market participants speculate that significant INR weakness could prompt RBI intervention to stabilize the currency.
Investors are also closely watching the weekly US Initial Jobless Claims for further signs of economic slowdown, particularly in employment figures.
Market Movers: Indian Rupee Influenced by Global Dynamics
The RBI’s Monetary Policy Committee (MPC) voted 4-2 to keep policy rates unchanged, retaining the “Withdrawal of Accommodation” stance.
RBI maintained its FY25 real GDP growth projection at 7.2% and the CPI inflation forecast at 4.5%, citing balanced risks.
Governor Das emphasized robust domestic growth driven by urban consumption and improving manufacturing demand. However, he acknowledged ongoing food price pressures and medium-term global growth challenges.
Das also commented on the US economy, noting its overall strength and cautioning against premature conclusions about a recession based on one month of unemployment data.
The Indian Rupee and Taiwan Dollar were bearish, influenced by carry trade unwinding and an equities sell-off, according to a Reuters poll. While state-run banks were observed offering Dollars, likely on behalf of the RBI, the intervention was described as not aggressive by a foreign exchange trader at a large private bank.
Deloitte India forecasted a 7.0-7.2% growth for the Indian economy in the current fiscal year, supported by strong economic fundamentals and ongoing domestic policy reforms.
Geopolitical developments added to market anxieties, with US officials predicting a delayed response from Hezbollah and Iran, initially expected early in the week but now anticipated by Thursday or Friday, according to Al Arabiya.
Rate markets have priced in an 83% chance of a 50 basis points (bps) Fed rate cut in September, with additional cuts expected later in 2024, as per the CME’s FedWatch Tool.
Technical Analysis: USD/INR Maintains Bullish Outlook
The Indian Rupee trades softer, with the USD/INR pair showing a long-term bullish trend, staying above the key 100-day Exponential Moving Average (EMA) and the uptrend line since June 3. The 14-day Relative Strength Index (RSI) near 68.20 indicates sustained upward strength.
The immediate resistance for the pair is at the 84.00 psychological barrier. A decisive break above this level could trigger enough buying pressure to test the next hurdle at 84.50.
On the downside, the initial support level to watch is the uptrend line around 83.80. A break below this could signal a more significant decline towards the next support near the 100-day EMA at 83.50.
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