The Indian Rupee (INR) declined against a stronger US Dollar (USD) on Monday, continuing its trend as one of the worst-performing Asian currencies in August. This decline has been largely influenced by strong USD demand from state-run banks. The release of the HSBC India Manufacturing Purchasing Managers Index (PMI) data on Monday further pressured the INR, showing a decrease to 57.5 in August, down from 57.9 in July and below market expectations. The weak PMI reading has added to the currency’s struggles, though potential inflows into local equities and a further decline in crude oil prices may limit further downside.
Investors are now closely watching the US ISM Manufacturing PMI, set to be released on Tuesday, and the US Nonfarm Payrolls (NFP) report due on Friday. These indicators could provide clues about the Federal Reserve’s approach to future interest rate cuts. A weaker-than-expected NFP report might lead to selling pressure on the USD.
Pranjul Bhandari, Chief India Economist at HSBC, noted the slowdown in new orders and output, attributing it to fierce competition in the market. “In line with input costs, the pace of output price inflation also decelerated, but the deceleration was to a much smaller extent, thereby increasing margins for manufacturers,” Bhandari added.
The Indian Rupee depreciated by 0.2% in August, currently trading at 83.87 per USD, close to its all-time low of 83.97 per USD. This decline occurred despite a general weakening of the US Dollar, driven by factors such as a slowdown in Foreign Portfolio Investment (FPI) inflows, particularly in the equity segment, and increased dollar demand by importers. In contrast, most global currencies appreciated against the USD.
India’s economic growth also showed signs of slowing, with GDP growth for the April-June quarter falling to a 15-month low of 6.7%, down from 7.8% in the previous quarter, as reported by the statistics ministry on Friday.
In the US, the Personal Consumption Expenditures (PCE) Price Index rose by 0.2% month-on-month in July, meeting market expectations, according to the Commerce Department. On an annual basis, PCE inflation remained steady at 2.5%, while core PCE, which excludes volatile food and energy prices, also increased by 0.2% for the month but slightly undershot expectations with a 2.6% annual rise.
Following the PCE inflation report, traders slightly increased their bets on a 25 basis point (bps) rate cut by the Federal Reserve in September to around 70%, with a 30% chance of a 50 bps reduction, according to the CME FedWatch tool.
Technical Analysis: Bullish Momentum for USD/INR
The Indian Rupee remains under pressure, with the USD/INR pair capped just below the 84.00 mark. The broader outlook for USD/INR remains bullish as the pair holds support above the key 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) is in bullish territory, near 54.50, indicating strong momentum in favor of the USD.
The crucial resistance level for USD/INR stands at 84.00, with further gains likely attracting buyers toward 84.50. On the downside, the August 20 low of 83.77 serves as initial support, with additional selling pressure potentially pushing the pair down to the 100-day EMA at 83.61.
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