The Indian Rupee (INR) extended its gains for the second consecutive session against the US Dollar (USD) on Monday. However, the USD/INR pair might see short-term appreciation due to a broader decline in Asian equities and currencies, driven by increasing concerns over a potential slowdown in the US economy.
Last week, the Reserve Bank of India (RBI) likely intervened multiple times to support the INR. Traders are monitoring potential RBI actions to prevent the INR from dropping below the 84.00 mark. Rising oil prices could also pressure the INR, as India is the world’s third-largest oil consumer and importer.
The downside of the USD/INR pair could be limited as the USD gains support from Friday’s US labor data, which have reduced the likelihood of an aggressive rate cut by the Federal Reserve (Fed) in its September meeting. The US Nonfarm Payrolls (NFP) report showed an addition of 142,000 jobs in August, below the forecast of 160,000 but an improvement from July’s downwardly revised figure of 89,000.
According to the CME FedWatch Tool, markets are fully expecting at least a 25 basis point (bps) rate cut by the Fed at its September meeting, although the likelihood of a 50 bps cut has slightly decreased to 29.0%, down from 30.0% the previous week.
Federal Reserve Bank of Chicago President Austan Goolsbee remarked that Fed officials are aligning with market sentiment regarding a possible policy rate adjustment. FXStreet’s FedTracker, which assesses Fed officials’ comments on a dovish-to-hawkish scale, rated Goolsbee’s remarks as dovish, with a score of 3.2.
India’s foreign exchange reserves reached a record high of $683.99 billion as of August 30, up from $681.69 billion previously. This increase is attributed to robust economic growth and the inclusion of Indian assets in JPMorgan’s major emerging market debt index, which has bolstered foreign investment.
The ADP Employment Change report showed an increase of 99,000 private-sector jobs in August, below the estimate of 145,000 but higher than July’s 111,000. Weekly US Initial Jobless Claims rose to 227,000 for the week ending August 30, compared to the previous reading of 232,000 and slightly below the initial consensus of 230,000.
The Composite PMI for India continued to show strong growth in August, driven by accelerated business activity in the service sector, which experienced its fastest expansion since March. HSBC Chief India Economist Pranjul Bhandari noted that this growth was fueled by an increase in new domestic orders. Additionally, the World Bank has raised India’s growth forecast to 7% for the current financial year (FY25), up from an earlier projection of 6.6%.
US JOLTS Job Openings dropped to 7.673 million in July, the lowest level since January 2021 and below market expectations of 8.10 million.
Technical analysis of the USD/INR pair shows it trading around 84.00. The daily chart indicates consolidation within a symmetrical triangle pattern, suggesting a period of decreased volatility. The 14-day Relative Strength Index (RSI) remains just above 50, indicating that the overall trend is still bullish.
Immediate support is provided by the nine-day Exponential Moving Average (EMA) at 83.92, followed by the lower boundary of the symmetrical triangle around 83.90. A breach below this level could reinforce a bearish bias, potentially pushing the USD/INR pair towards its six-week low of 83.72. A decline below the 50 level on the RSI might signal a shift toward a bearish trend.
Resistance is testing the upper boundary of the symmetrical triangle at 84.00. A breakout above this level could lead the pair to approach its recent high of 84.14, recorded on August 5.
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