The Indian Rupee (INR) held steady against the US Dollar (USD) on Friday, with the USD/INR pair trading in the 84.00-84.10 range. Despite facing pressure from ongoing foreign outflows from Indian equities, potential interventions by the Reserve Bank of India (RBI) have helped stabilize the Rupee.
The INR encountered downward momentum as Foreign Institutional Investors (FIIs) became net sellers of Indian stocks for the 19th consecutive session on Thursday, reallocating investments toward China in response to recent stimulus measures and more attractive valuations. Both the Nifty 50 and BSE Sensex indices have declined this week, nearing their fourth consecutive weekly loss.
The US Dollar has gained support amid rising expectations that the Federal Reserve (Fed) will adopt a less aggressive approach to interest rate cuts than previously thought. Additionally, speculation surrounding a potential second term for former President Donald Trump in the upcoming US presidential election has bolstered the Greenback, particularly in light of inflationary policies, including higher tariffs and lower taxes.
According to the CME FedWatch Tool, there is a 97% likelihood of a 25-basis-point rate cut by the Fed in November, with no anticipation of a larger 50-basis-point cut. Preliminary estimates from S&P Global indicated that the US Composite Purchasing Managers Index (PMI) rose to 54.3, up from 54.0. The Services PMI also exceeded expectations at 55.3, compared to the forecasted 55.0, while the Manufacturing PMI improved to 47.8, above the anticipated 47.5.
In a significant diplomatic development, Indian Prime Minister Narendra Modi and Chinese President Xi Jinping held their first formal talks in five years on the sidelines of the BRICS summit in Russia. The leaders agreed to enhance communication and cooperation between India and China to address ongoing conflicts and improve relations strained by a deadly military clash in 2020, as reported by Reuters.
India’s HSBC Composite Purchasing Managers Index (PMI) showed an increase to 58.6 in October, up from 58.3 the previous month. The Manufacturing PMI rose to 57.4, while the Services PMI edged up to 57.9, recovering from a one-year low of 57.7 in September, marking the 39th consecutive month of expansion in services activity.
Jim O’Neill, the former Goldman Sachs economist who coined the term BRIC, told Reuters that the idea of the BRICS group challenging the US Dollar remains unrealistic as long as China and India remain divided and unwilling to cooperate on trade.
Minutes from the October meeting of the Monetary Policy Committee (MPC) indicated that members favored a cautious approach to lowering interest rates, emphasizing that India cannot afford another wave of inflation. In a speech at the New York Fed Central Banking Seminar, RBI Deputy Governor Michael Patra asserted that the best defense against global risks is to strengthen macroeconomic fundamentals and build adequate buffers through prudent policies. He noted that India’s central bank has strategically increased its foreign exchange reserves, now nearly equivalent to 12 months’ worth of imports.
The Fed’s Beige Book report indicated that economic activity remained “little changed” across nearly all districts, contrasting with August’s report, which noted growth in three districts.
Technical Analysis: The USD/INR pair remains stable above the 84.00 mark on Friday. Technical analysis suggests the pair is testing the lower boundary of an ascending channel pattern. A breakdown below this channel could indicate a weakening of the current bullish trend. The 14-day Relative Strength Index (RSI) is below the 70 level, reinforcing the prevailing bullish sentiment.
In terms of resistance, the USD/INR pair may face challenges at its all-time high of 84.14, reached on August 5. A breakout above this level could allow the pair to approach the upper boundary of the ascending channel, situated around 84.20. On the support side, immediate support is found at the nine-day Exponential Moving Average (EMA) near the 84.03 level, aligning with the lower boundary of the ascending channel near the psychological level of 84.00.
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