USD/INR loses traction ahead of Indian/US PMI data

Source Fxstreet
Jun 3, 2024 02:53

Most recent article: 2024 Indian election: Continuity expected as Modi looks set to win third term

  • Indian Rupee rebounds on Monday on the softer USD. 
  • The success of Narendra Modi's (BJP) third-term election might boost the INR. 
  • The final reading on Indian and US Manufacturing PMI for May will be in the spotlight on Monday. 

Indian Rupee (INR) recovers on Monday amid the weaker US dollar (USD). On Friday, the INR closed the week with its worst weekly performance in over two months, pressured by month-end USD demand from importers. However, the decline of the INR might be limited as the Reserve Bank of India (RBI) is likely to intervene in the local currency from depreciation. 

Market players await India's general election outcome, with vote counting on June 4. Analysts expect the Indian Rupee to rally this week as exit polls revealed Prime Minister Narendra Modi's Bharatiya Janata Party would win a third term. 

The final reading of India’s Manufacturing Purchasing Managers Index (PMI) for May is due on Monday, which is expected to remain unchanged from the first estimate of 58.4. 

On the US docket, the ISM Manufacturing PMI will be released. The stronger-than-expected reading might dampen the expectation of the Federal Reserve (Fed) rate cut this year and boost the Greenback. 

Daily Digest Market Movers: Indian Rupee gains ground ahead of India's general election result

  • Most exit polls projected the governing NDA would win a two-thirds majority in the 543-member lower house of parliament, where 272 is required for a simple majority.
  • The 10-year Indian government bond yield closed Friday at 6.9809%, marking the sixth straight weekly decline and having its biggest monthly loss in four years.
  • The US Personal Consumption Expenditures (PCE) Price Index came in as expected, advancing 0.3% on a monthly basis in April and rising 2.7% on a yearly basis. 
  • The Core PCE, excluding the volatile food and energy, rose 0.2% MoM in April, compared to a 0.3% gain in March. On an annual basis, the core PCE price index climbed 2.8% for the third consecutive month.
  • Personal Income rose 0.3% on a monthly basis in April, while Personal Spending grew by 0.2%.
  • The US ISM Manufacturing PMI is expected to improve to 49.8 in May from 49.2 in April. 

Technical analysis: USD/INR’s bullish outlook prevails

The Indian Rupee trades stronger on the day. The USD/INR pair keeps the bullish vibe above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands around 55.0, supporting the buyers for the time being. 

A decisive break above a descending trend channel that has been established since mid-April at 83.40 will see a rally to 83.54 (high of May 13), followed by 83.72 (high of April 17), and finally at 84.00 (psychological mark).

On the flip side, the 100-day EMA around 83.21 acts as an initial support level for USD/INR. The key contention level to watch is the 83.00 round figure, A breach of the mentioned level could expose 82.78 (low of January 15). 
 

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.01% -0.03% 0.03% -0.02% 0.01% -0.08% -0.03%
EUR 0.02%   -0.01% 0.03% -0.01% 0.03% -0.06% 0.01%
GBP 0.03% 0.02%   0.06% 0.01% 0.05% -0.05% 0.01%
CAD -0.02% -0.03% -0.05%   -0.04% 0.00% -0.10% -0.04%
AUD 0.02% 0.01% 0.00% 0.05%   0.05% -0.06% 0.01%
JPY -0.02% -0.02% -0.04% 0.00% -0.06%   -0.10% -0.04%
NZD 0.08% 0.07% 0.05% 0.11% 0.07% 0.10%   0.06%
CHF 0.02% 0.01% -0.01% 0.04% 0.00% 0.04% -0.06%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

Indian Rupee FAQs

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.

The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.

Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.

Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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