The Indian Rupee (INR) gained ground on Monday as the US Dollar (USD) weakened, likely due to the unwinding of long positions ahead of the upcoming US presidential election. However, persistent foreign outflows from domestic equities and rising crude oil prices may limit the Rupee’s upward movement.
Recent data released on Monday revealed that the HSBC India Manufacturing Purchasing Managers Index (PMI) rose to 57.5 in October, surpassing both the market consensus of 57.4 and the previous reading of 56.5. This positive PMI report contributed to the INR’s immediate strength.
As the US presidential election and the Federal Reserve’s interest rate decision take center stage this week, market volatility is anticipated. Analysts expect the Federal Reserve to implement a 25 basis point rate cut during its November meeting on Thursday.
In a Reuters poll, expectations indicate that the Indian Rupee will likely trade within a narrow range against the dollar over the next year, as the Reserve Bank of India (RBI) continues to utilize its foreign exchange reserves to stabilize the currency. “FX intervention has been ongoing and is not just a recent phenomenon; it has continued since the COVID-19 pandemic, so we anticipate continued two-sided interventions,” stated Vivek Kumar, an economist at QuantEco Research.
The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by only 12,000 in October, a significant decline from the revised 223,000 increase in September and well below the market expectation of 113,000. The unemployment rate remained steady at 4.1%, in line with forecasts.
Analyst Chris Weston from Pepperstone remarked, “A Trump victory is generally viewed as beneficial for the USD, although many believe this outcome is already priced in.”
Technical Analysis: Although the Indian Rupee shows signs of weakness today, the longer-term outlook for the USD/INR pair remains bullish. The price is currently holding above the crucial 100-day Exponential Moving Average (EMA), supported by an upward momentum indicated by the 14-day Relative Strength Index (RSI), which is above the midline at approximately 57.70.
For the USD/INR pair, the first resistance level is identified at the upper boundary of the ascending trend channel at 84.24. A breakout above this level could trigger increased buying pressure towards 84.50, potentially reaching the psychological mark of 85.00. Conversely, a decisive close below the trend channel’s lower limit around 84.05 could lead to a decline towards 83.78, aligning with the 100-day EMA.
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