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The Indian Rupee (INR) experienced a decline on Wednesday, continuing its status as the weakest-performing Asian currency in August. This trend is attributed to trade deficits and sustained demand for the US Dollar (USD) from importers. Despite the INR’s weakening, significant depreciation appears constrained, partly due to potential interventions by the Reserve Bank of India (RBI) which might involve selling USD to prevent the local currency from falling below the crucial 84.00 level. Additionally, the recent decline in crude oil prices could offer some short-term support for the INR.
Market participants will closely watch the preliminary results of the Indian August HSBC Purchasing Managers’ Index (PMI) scheduled for release on Thursday for further direction. The focus this week will also be on Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium on Friday. Speculation is mounting that Powell might signal a potential interest rate cut, which could put downward pressure on the USD.
Market Movements and Influences:
According to analysts at MUFG Bank, “Asian currencies have generally strengthened against the US dollar due to broad-based USD weakness and increased risk appetite.” In August, foreign investors have withdrawn approximately $2.5 billion from Indian equities, as reported by stock depository data. Additionally, India’s exports fell by 6% year-to-date through July compared to the same period last year, while foreign direct investment in India decreased by 3.5% in FY24.
Fed Governor Michelle Bowman indicated on Tuesday that she will adopt a cautious approach regarding any changes in policy. She cautioned against overreacting to individual data points, which could undermine the progress achieved so far. According to the CME FedWatch Tool, markets are currently pricing in a 67.5% probability of a 25 basis point interest rate cut by the Fed in September.
Technical Analysis: USD/INR Outlook
On the day, the Indian Rupee has shown some resilience. The USD/INR pair maintains a positive long-term outlook, supported by its position above the 100-day Exponential Moving Average (EMA) on the daily chart. However, recent selling pressure below the 11-week uptrend line and a bearish 14-day Relative Strength Index (RSI) below the 50 mark suggest that further declines cannot be ruled out.
The key resistance for USD/INR is observed around the 83.90-84.00 range, including the uptrend line and a significant psychological level. A breakout above this zone could lead to a rally towards the record high of 84.24, potentially extending to 84.50.
Conversely, if the bearish trend persists, initial support could be at 83.70, the low recorded on August 1. Additional support levels include the 100-day EMA at 83.55 and 83.36, the low from June 28.
