The Indian Rupee (INR) weakened in the early European session on Tuesday due to a rebound in the Greenback. However, the positive Indian equity market, foreign fund inflows, and lower crude oil prices could provide some support to the INR. On the other hand, increased USD demand by importers and safe-haven flows ahead of key US labor market data may weigh on the local currency. Investors will closely monitor the US ISM Manufacturing PMI release on Tuesday, as well as the Indian August HSBC Services PMI. Market attention will also be on the US labor market reports later in the week, with the NFP report expected to have a significant impact on the USD following comments from Fed Chair Jerome Powell.
The HSBC India Manufacturing Purchasing Managers Index (PMI) dipped to a three-month low in August, below expectations. The slowdown was attributed to fierce competition in the market. Meanwhile, the HSBC India Services PMI is expected to improve in August. The US ISM Manufacturing PMI for August is projected to rise, while the Services PMI may ease slightly. The market is pricing in a 25 basis point interest rate cut by the Fed in September, with odds of nearly 69%.
On a technical analysis front, the USD/INR pair remains in a consolidative mode but retains bullish potential. The price is above the key 100-day Exponential Moving Average (EMA) and the 14-day Relative Strength Index (RSI) is above the midline. The potential upside barrier for USD/INR is at the 84.00 psychological level, with further upside potential towards 84.50. In a bearish scenario, the first downside target is at 83.84, with the 100-day EMA providing support at 83.62.
The market will continue to monitor global factors impacting the Indian Rupee, including the performance of the US Dollar and key economic data releases. Foreign fund inflows and lower crude oil prices could provide some support to the INR, while increased USD demand by importers and safe-haven flows may exert pressure on the currency. Investors will be closely watching the upcoming US labor market reports and the impact they may have on the USD and global markets. The Fed’s potential interest rate cut in September will also be a key focus for market participants, with expectations currently leaning towards a 25 basis point cut.
