The Indian Rupee (INR) strengthened on Friday despite a stronger US Dollar, buoyed by India’s increased weight in the MSCI Emerging Market Index, which is expected to attract substantial foreign investment and stabilize the INR in the near term. Nonetheless, the recent recovery in crude oil prices may limit further gains, given that India is the world’s third-largest oil importer and consumer.
India’s GDP data for the first quarter of fiscal 2024-25 (FY25) is anticipated to be released on Friday, with estimates predicting a growth rate of 6.9% year-on-year. In the US, the Personal Consumption Expenditure (PCE) inflation data will be closely watched, as it may provide insights into whether the Federal Reserve will opt for a 25 or 50 basis point (bps) rate cut in its upcoming September meeting.
Daily Digest: INR Impacted by Equity Inflows and Global Developments
The adjustment of Indian equities’ weight in MSCI’s emerging market index, effective Friday, is projected to bring in up to $3 billion in inflows, according to Nuvama Alternative and Quantitative Research.
In the US, the Bureau of Economic Analysis (BEA) revised the annualized Gross Domestic Product (GDP) growth for the second quarter (Q2) upward to 3.0%, from an initial estimate of 2.8%, surpassing expectations. Additionally, new jobless claims for the week ending August 24 fell to 231,000 from 233,000 the previous week, coming in below the consensus estimate of 232,000.
Federal Reserve Atlanta President Raphael Bostic indicated on Thursday that while progress has been made, further data on employment and inflation is needed before deciding on rate cuts. According to the CME FedWatch Tool, the futures market is now pricing in a nearly 66% probability of a 25 basis point rate cut in September, with the likelihood of a 50 basis point cut decreasing to 34%, down from 36.5% prior to the GDP data release.
Technical Analysis: INR Trends and Market Levels
The INR strengthened today, with the USD/INR pair encountering resistance at the 84.00 level on Wednesday. Despite this, the overall bullish outlook remains as the pair trades above the 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) is near the midline, suggesting neutral momentum for the USD/INR pair.
The ascending trendline and the psychological barrier of 84.00 continue to present challenges for the pair. Should bullish momentum persist, a rally to the record high of 84.24 and potentially 84.50 could be expected.
On the downside, the immediate support target is near the August 20 low of 83.77. Further declines could see the pair drop to the 100-day EMA at 83.61.
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