The Indian Rupee (INR) is showing strength in the early European session on Wednesday, buoyed by an improved risk appetite and a weakening US Dollar (USD). China’s stimulus measures and softer USD are supporting the local currency. However, factors such as rising crude oil prices and outflows related to a rejig of the FTSE equity indexes may exert selling pressure on the INR. Additionally, renewed USD demand from large Indian importers could impact the currency. Traders are awaiting the US August New Home Sales data and a speech from the Fed’s Governor Adriana Kugler for further direction.
Market experts foresee a positive bias for the INR amidst improved global risk sentiment following China’s stimulus measures. S&P Global Ratings has retained India’s GDP growth forecast at 6.8% and suggested that the Reserve Bank of India (RBI) may cut interest rates in October. The US Consumer Confidence Index dropped in September, while Fed Governor Michelle Bowman acknowledged high inflation levels. The markets are pricing in the possibility of a 50 bps rate cut in the November meeting, with a 44% chance of a 25 bps cut.
In terms of technical analysis, the negative view on the USD/INR pair remains unchanged in the longer term. The pair is currently trading lower, with the price capped under the key 100-day Exponential Moving Average (EMA) on the daily chart. The downward momentum is supported by the 14-day Relative Strength Index (RSI), indicating further downside potential. Key support levels for the pair are at 83.44 and 83.00, while resistance is seen at 83.75 and 84.00.
Understanding risk sentiment is a crucial aspect of trading in financial markets. In a “risk-on” market, investors are more willing to take risks and buy risky assets, while in a “risk-off” market, investors tend to play it safe and invest in less risky assets. During periods of “risk-on,” stock markets rise, commodities gain value, and currencies of commodity-exporting nations strengthen. In contrast, during “risk-off” periods, bonds, gold, and safe-haven currencies like the USD, JPY, and CHF tend to benefit.
In conclusion, the Indian Rupee’s strength is being supported by positive risk sentiment and a weaker US Dollar. The upcoming US economic data and Fed speeches will provide further guidance for traders. Despite potential challenges like rising crude oil prices, the INR is expected to maintain its positive bias. Understanding risk sentiment and technical analysis can help traders navigate the currency markets effectively.
