USD Rebounds Modestly, USD/INR Finds Some Support

The Indian rupee (INR) lost momentum on Tuesday amid a modest rebound against the US dollar (USD). Analysts believe continued equity outflows could put some selling pressure on the Indian rupee and limit USD/INR downside. Traders will be keeping a close eye on foreign outflows as overseas investors have been mostly on the sell side since the start of the current fiscal year.

On the other hand, the prospect of the Federal Reserve cutting interest rates this year, following weak U.S. inflation data in April, weighed on the dollar and U.S. bond yields. Additionally, state-run banks are likely to sell dollars on behalf of the Reserve Bank of India (RBI), which could boost the local currency in the short term. India’s foreign exchange and debt markets will be closed on Thursday. Meanwhile, traders will get more clues from speeches by Federal Reserve officials. In addition to this, the results of India’s national election will be announced on June 4, and the exit polls will be released after the final phase of the election on June 1.

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