The Indian Rupee struggled to gain ground on Tuesday amidst uncertainties surrounding the upcoming Indian election and higher oil prices. Speculative flows slowed down as investors hesitated to make large bets and awaited election outcomes scheduled for June 4. Additionally, the increase in crude oil prices added selling pressure on the INR as India is one of the world’s largest oil importers. Investors are closely monitoring the release of India’s Q4 GDP data which is anticipated to moderate to 6.7% from the previous 8.4% reading. Any weaker-than-expected growth could further impact the Indian Rupee. On the US front, the PCE inflation data for April will be key in determining future Fed rate cuts and could influence the strength of the US dollar.
Despite strong gains in Indian equity indices, the BSE Sensex and Nifty 50 ended the session in the red. Despite negative foreign fund flows in many emerging markets, India continues to attract substantial investments, mainly due to strong ETF inflows and positive investor sentiment as per research by Kotak Institutional Equities. The Indian economy is expected to grow at a slower pace in the first quarter due to weak demand. Global leaders have called for the implementation of a World Court order to halt Israeli attacks in Gaza after an airstrike triggered a fire that resulted in several casualties. Investors are now pricing in a smaller Fed rate cut of 34 basis points over 2024, down from previous expectations.
On the technical analysis front, the USD/INR pair is showing a bearish outlook as the Indian Rupee trades softer. The pair broke below the neckline of the Head and Shoulders pattern last week and is holding below the key 100-day EMA on the daily chart. The 14-day RSI stands in bearish territory around 37.80. In case of upside movements, barriers for USD/INR are expected near the 100-day EMA and support-turned-resistance level at 83.20. On the downside, a break below the 83.00 mark could lead to further downside targets.
In the last 7 days, the US Dollar was the strongest against the Japanese Yen, as per percentage changes against major currencies. The RBI FAQ sheds light on the role of the Reserve Bank of India in maintaining price stability and growth within the Indian economy. The RBI intervenes in FX markets to maintain exchange rates within a limited range to protect Indian importers and exporters from unnecessary currency risks. Six bi-monthly meetings are held by the RBI annually to discuss monetary policy and adjust interest rates as necessary based on inflation levels. In the event of high inflation rates, the RBI may raise interest rates to control borrowing and spending, which can support the Rupee, while cuts may be implemented in low inflation scenarios to promote lending, potentially negatively impacting the INR.
