The Indian Rupee (INR) faced downwards pressure on Tuesday as the US Dollar (USD) saw a modest rebound. This was due in part to ongoing equity outflows that are expected to weigh on the INR. Foreign investors have been selling Indian equities to the tune of over $3 billion in May, marking the largest monthly outflow since January 2023. Additionally, India announced plans to reduce the supply of Treasury bills by 600 billion rupees in the next six weeks, potentially impacting bond yields. Despite these challenges, India’s GDP growth is expected to reach 6.7% in the March quarter, with a forecast of 6.9-7% for the fiscal year 2023–24. The United Nations also revised India’s growth projections, predicting a growth rate of 6.9% in 2024 and 6.6% in 2025. Financial markets have priced in a 76% likelihood of a rate cut from the Fed, highlighting the potential impact on the USD/INR exchange rate.
The technical analysis for USD/INR indicates a bullish stance, with the pair trading above the key 100-day Exponential Moving Average (EMA). However, there is a possibility of the bearish bias resuming if the pair crosses below the key EMA and the neckline of the Head and Shoulders pattern established since March 21. The 14-day Relative Strength Index (RSI) suggests further downside potential, with a key resistance level at 83.54. A break above this level could invalidate the Head and Shoulders pattern. On the flip side, a key support level lies at 83.20-83.25, where the neckline and the 100-day EMA converge. Below this level, a drop to the psychological level of 83.00 is possible, followed by a low of 82.78 from January 15.
The US Dollar price today saw moderate changes against major currencies, with the USD showing strength against the EUR, GBP, CAD, AUD, JPY, and NZD, while weakening against the CHF. The percentage changes are displayed in a heat map format for easy comparison. The Indian Rupee (INR) is heavily 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 (RBI) intervenes in forex markets to maintain a stable exchange rate and adjusts interest rates to control inflation. Other macroeconomic factors that impact the Rupee include inflation, interest rates, economic growth rate (GDP), balance of trade, and inflows from foreign investment. Higher inflation, if comparatively higher than India’s peers, can have a negative impact on the currency, while higher interest rates and a risk-on environment can be positive for the Rupee.
In the coming days, traders will continue to monitor foreign inflows and outflows, as well as key speeches by Fed officials. The outcome of India’s national elections on June 4 will also be a significant event to watch. The USD/INR exchange rate will be influenced by a combination of domestic and international factors, making it important for traders to stay informed and adapt their strategies accordingly. As the currency markets continue to evolve, keeping track of the key drivers shaping the Indian Rupee’s performance will be crucial for investors looking to navigate the dynamic landscape of foreign exchange trading.
