The Indian Rupee weakened for the fourth consecutive day on Thursday, driven by the strong demand for US Dollars from importers, uncertainties related to India’s upcoming elections, and foreign outflows in Indian equities. Market analysts are closely monitoring India’s general elections, with the outcome expected to be counted on June 4. Many believe that the Indian Rupee could see some improvement if Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) wins the election and continues with pro-growth policies. Additionally, the second estimate of the US Gross Domestic Product (GDP) for Q1 2024 will be in focus on Thursday, followed by the US Core Personal Consumption Expenditures Price Index (Core PCE) for April and India’s GDP number for the March quarter.
The month-end USD purchases by oil importers have further pushed the Indian Rupee downward, according to experts. Despite this, S&P Global Ratings retained India’s sovereign rating but upgraded its outlook from ‘stable’ to ‘positive’. Foreign investors have sold about $2.8 billion of Indian equities in May, citing concerns about the upcoming elections. Federal Reserve Atlanta President Bostic mentioned that there is still work to be done to control significant price growth. The US economy has been expanding at a slight to modest pace, with consumers showing resistance to higher prices since early April. Investors have priced in 50% odds of the Fed holding interest rates in September.
From a technical analysis perspective, the USD/INR pair has resumed its bullish stance on the daily chart. The pair has crossed above the key 100-day Exponential Moving Average (EMA) and the 14-day Relative Strength Index (RSI) is back in a bullish zone, suggesting that support is likely to hold. In case of further upwards movement, the pair may encounter resistance at 83.40, with a break above leading to levels at 83.54, 83.72, and 84.00. On the downside, the 100-day EMA at 83.20 acts as initial support, with a key contention level at the psychological level of 83.00. Further losses could target levels at 82.78 and 82.65.
The US Dollar was strongest against the New Zealand Dollar, as seen in the percentage changes of the USD against other major currencies. The heat map provided further insights into the percentage changes of major currencies against each other. The Indian Rupee is influenced by external factors such as the price of Crude Oil, the value of the US Dollar, and the level of foreign investment. The Reserve Bank of India intervenes in the forex market to maintain stability, while factors such as inflation, interest rates, GDP growth rate, balance of trade, and inflows from foreign investment also play a significant role in determining the value of the Rupee. Higher growth rates, positive trade balances, and higher real interest rates are favorable for the Rupee, while higher inflation relative to peers can have a negative impact on the currency.
In conclusion, the Indian Rupee’s recent decline can be attributed to various factors such as USD demand, election-related uncertainties, and foreign outflows in equities. The upcoming general elections and economic data releases will likely continue to impact the Rupee’s movement. Additionally, technical analysis indicates a bullish stance for the USD/INR pair, with key levels to watch for in the near term. Understanding the macroeconomic factors and external influences on the Indian Rupee can provide insights into its future performance and help investors navigate the currency markets effectively.
