The Indian Rupee (INR) gained traction on Friday, bolstered by dovish signals from the US Federal Reserve (Fed) and a decline in crude oil prices. Traders anticipate that the INR’s decline may be mitigated by potential intervention from the Reserve Bank of India (RBI), which could sell US Dollars (USD) to prevent the INR from falling below the crucial 84.00 level.
Despite these supportive factors, persistent demand for the Greenback from importers and ongoing foreign fund outflows may weigh on the INR and limit its potential upside. Attention will be focused on Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, which could provide clues about future US interest rate decisions.
Market Insights: INR Rebounds, but Upside Potential May Be Capped
The Reserve Bank of India (RBI) released minutes from its Monetary Policy Committee (MPC) meeting on Thursday, underscoring the need for continued disinflationary measures to anchor inflation at target levels. Headline inflation rose to 5.1% in June, driven by increased food prices, which offset the effects of subdued core inflation and deflation in fuel prices.
RBI Governor Shaktikanta Das remarked that “Inflation is gradually trending down, but the pace is slow and uneven. Durable alignment of inflation to the target of 4.0 percent is still some distance away. Persistent food inflation is imparting stickiness to headline inflation.”
In economic data, the HSBC India Manufacturing Purchasing Managers Index (PMI) decreased to 57.9 in August from 58.1 in July, while the Services PMI edged up to 60.4 from 60.3. The US S&P Global Composite PMI fell slightly to 54.1 from 54.3, outperforming expectations, while the Manufacturing PMI dropped to 48 from 49.6. The Services PMI improved to 55.2 from 55.
Federal Reserve Bank of Boston President Susan Collins suggested that rate cuts may soon be appropriate, with data guiding the pace of these reductions. Kansas City Fed President Jeff Schmid highlighted his focus on unemployment rate dynamics, signaling that future rate cuts would be data-driven.
Investors are now pricing in a 76% chance of a 25 basis points (bps) rate cut by the Fed in September, according to the CME FedWatch Tool.
Technical Analysis: USD/INR Outlook Remains Constructive
The Indian Rupee is trading stronger, with the USD/INR pair maintaining a bullish outlook. The price remains above the 100-day Exponential Moving Average (EMA) and the 11-week uptrend line. The 14-day Relative Strength Index (RSI) is above the midline at 58.40, indicating sustained bullish momentum.
If USD/INR breaches the 84.00 psychological level, it may test the record high of 84.24, with potential for further gains to 84.50. Conversely, sustained trading below the ascending trendline at around 83.92 could attract sellers, pushing the pair towards 83.77, the August 20 low. The 100-day EMA at 83.57 will be a critical support level to monitor.
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