The Indian Rupee (INR) experienced a decline on Tuesday, pressured by heightened demand for US Dollars (USD) from local banks and corporates at month-end and a rise in crude oil prices. These factors are expected to limit any potential gains for the INR. Conversely, the currency’s downside may be constrained by dovish comments from US Federal Reserve (Fed) Chair Jerome Powell at the Jackson Hole Symposium, which have sparked speculation about a deeper rate cut in the Fed’s upcoming September meeting.
Market watchers will focus on the US Conference Board’s Consumer Confidence Index for August, scheduled for release on Tuesday. This week will also feature the advanced US Gross Domestic Product (GDP) Annualized for Q2 and the Personal Consumption Expenditures (PCE) Price Index data. In India, the GDP Quarterly for Q1 is set to be released on Friday.
Market Insights and Expectations: Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, commented, “We expect the rupee to trade with a slight positive bias due to global risk sentiment and dovish Fed indications, which raise expectations for a rate cut in September. However, geopolitical tensions in the Middle East and rising crude oil prices may cap significant gains.”
According to a Reuters poll, India’s economic growth likely slowed to its weakest pace in a year during the April-June quarter, attributed to reduced government spending.
San Francisco Fed President Mary Daly indicated on Monday that it may be time to lower interest rates, suggesting a potential quarter-percentage point cut. Richmond Fed President Thomas Barkin also mentioned a ‘test and learn’ approach to rate cuts.
US Durable Goods Orders rose by $26.1 billion, or 9.9%, to $289.6 billion in July, rebounding from a 6.9% contraction in June and exceeding market expectations. This marked the largest increase since May 2020. Futures markets currently price in a near 40% chance of a half-percentage point rate cut.
Technical Analysis: USD/INR Outlook: The USD/INR pair maintains a positive long-term outlook, trading above the key 100-day Exponential Moving Average (EMA). However, the price has dipped below a three-month-old uptrend line, with the 14-day Relative Strength Index (RSI) around the midline, indicating possible further consolidation.
The immediate resistance level for USD/INR is at the psychological mark of 84.00, with potential further resistance at the record high of 84.24 and towards 84.50. On the downside, initial support is at 83.77, the low from August 20. A drop below this level may lead to a decline towards the 100-day EMA at 83.57.
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