The Indian Rupee (INR) is holding steady against the US Dollar (USD) on Friday, with the USD/INR pair trading within the 84.00-84.10 range. While the Rupee is facing pressure from sustained foreign outflows from Indian equities, potential market interventions by the Reserve Bank of India (RBI) have helped to mitigate further declines.
Current Market Dynamics
The INR is under pressure as Foreign Institutional Investors (FIIs) continue to exit Indian stocks for the 19th consecutive session, reallocating their investments towards China due to attractive stimulus measures and favorable valuations. Consequently, both the Nifty 50 and BSE Sensex indices have depreciated this week, approaching their fourth consecutive weekly loss.
On the other hand, the US Dollar has gained support from increasing expectations that the Federal Reserve (Fed) will take a less aggressive approach to interest rate cuts than previously anticipated. Speculation regarding a possible second term for former President Donald Trump in the upcoming presidential election is further bolstering the Greenback, particularly due to anticipated inflationary policies like higher tariffs and lower taxes.
Daily Digest: Key Market Movers
The CME FedWatch Tool indicates a 97% probability of a 25-basis-point rate cut by the Fed in November, with no expectations for a larger 50-basis-point cut.
Preliminary estimates from the S&P Global US Composite PMI came in at 54.3, a slight increase from the previous 54.0. The Services PMI exceeded expectations at 55.3, while the Manufacturing PMI improved to 47.8, surpassing the forecast of 47.5.
On the diplomatic front, Indian Prime Minister Narendra Modi and Chinese President Xi Jinping held their first formal discussions in five years during the BRICS summit, agreeing to enhance communication and cooperation between their nations to resolve ongoing conflicts.
Economic Indicators and RBI’s Position
India’s HSBC Composite Purchasing Managers Index (PMI) revealed an increase to 58.6 in October, up from 58.3 in September. The Manufacturing PMI rose to 57.4, and the Services PMI edged higher to 57.9, marking 39 consecutive months of expansion in services activity.
Jim O’Neill, the former Goldman Sachs economist, stated that the idea of BRICS challenging the US Dollar remains unrealistic as long as India and China remain divided on trade issues. Meanwhile, the minutes from the recent Monetary Policy Committee (MPC) meeting indicated a cautious approach towards interest rate cuts, as members recognized the need to guard against potential inflationary pressures.
RBI Deputy Governor Michael Patra emphasized at the New York Fed Central Banking Seminar the importance of strengthening macroeconomic fundamentals and building adequate buffers to defend against global risks. He noted that India’s central bank has been strategically increasing its foreign exchange reserves, now equivalent to about 12 months’ worth of imports.
Technical Analysis: USD/INR Outlook
From a technical perspective, the USD/INR pair is currently testing the lower boundary of an ascending channel pattern near the 84.00 mark. A breakdown below this level could indicate a weakening of the current bullish trend. The 14-day Relative Strength Index (RSI) is positioned below the 70 level, which further supports the ongoing bullish outlook.
Resistance Levels:
The pair may face resistance at its all-time high of 84.14, reached on August 5. A breakout above this level could allow it to test the upper boundary of the ascending channel around 84.20.
Support Levels:
Immediate support is found at the nine-day Exponential Moving Average (EMA) near the 84.03 level, which aligns with the lower boundary of the ascending channel at the psychological level of 84.00.
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