On Tuesday, the Indian Rupee (INR) experienced a decline as the US Dollar (USD) gained strength. Despite supportive factors such as a buoyant Indian equity market, foreign fund inflows, and falling crude oil prices, the INR’s losses were exacerbated by heightened USD demand from importers and safe-haven flows ahead of crucial US labor market data.
The upcoming release of the US ISM Manufacturing Purchasing Managers Index (PMI) and the Indian HSBC Services PMI is generating significant market attention. Investors are particularly focused on Friday’s US labor market reports, including Nonfarm Payrolls (NFP), the Unemployment Rate, and Average Hourly Earnings for August. Comments from Federal Reserve Chair Jerome Powell at Jackson Hole last month have elevated the importance of this report, with a weaker-than-expected outcome potentially leading to a market-anticipated rate cut and increased selling pressure on the USD.
In market updates, the HSBC India Manufacturing PMI fell to a three-month low of 57.5 in August, below both expectations and the previous month’s reading of 57.9. HSBC’s chief India economist, Pranjul Bhandari, highlighted that “new orders and output mirrored the headline trend, with some panellists citing fierce competition as a reason for the slowdown.” Conversely, the HSBC India Services PMI is projected to rise slightly to 60.4 in August from 60.3 in July.
The US ISM Manufacturing PMI for August is expected to increase to 47.5 from 46.8, while the Services PMI is forecasted to decrease to 51.1 from 51.4. The market anticipates a 25 basis point rate cut by the Fed in September, with a nearly 69% probability according to the CME FedWatch tool.
Technically, the USD/INR pair is in a consolidative phase but maintains a bullish outlook on the daily chart. The pair remains above the 100-day Exponential Moving Average (EMA) and the 14-day Relative Strength Index (RSI) is above the midline. Key levels to watch include a psychological resistance at 84.00, with potential upside exposure to 84.50. On the downside, initial support is at 83.84, with further support at the 100-day EMA at 83.62.
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