The Indian Rupee (INR) faced challenges on Wednesday as the US Dollar (USD) gained strength due to cautious comments from Federal Reserve (Fed) officials. The Fed is awaiting more positive signs of improvement in the labor market and a slowdown in inflation before making any decisions regarding interest rates. Despite this, the INR could receive support from the positive sentiment in Indian equities, which reached a nearly three-week high on Tuesday. Investors are keeping an eye on the FOMC Minutes and a speech by the Fed’s Goolsbee on Wednesday. Additionally, upcoming economic data releases, such as India’s HSBC Manufacturing and Services PMI for May and the US S&P Global PMI, will also impact market sentiment.
In May, overseas investors sold Indian stocks worth over $3 billion, marking the largest monthly outflow since January 2023. However, the United Nations (UN) raised India’s growth predictions for 2024 to 6.9% from 6.2% in January and forecasted a 6.6% growth rate for 2025. Furthermore, the inclusion of India’s government bonds in JP Morgan’s GBI-EM index is expected to attract around $23 billion in inflows from June 2024 onwards, boosting investor confidence in the country’s financial markets. While Fed officials like Atlanta Fed President Raphael Bostic and Fed Governor Christopher Waller remain cautious about rate hikes, the CME FedWatch Tool indicates a 35% chance of no change in the Fed’s policy rate in September.
Technical analysis suggests that the USD/INR pair looks vulnerable on the daily chart, with the INR trading softer on the day. A bearish outlook could resume if the pair crosses below the key 100-day Exponential Moving Average (EMA) and the neckline of a Head and Shoulders pattern formed since March 21. The 14-day Relative Strength Index (RSI) remains in bearish territory, supporting sellers. A break below key support levels could expose further downside potential, while resistance levels are noted for potential upside movements in the pair.
Interestingly, the US Dollar saw varied performance against major currencies on Wednesday, with the USD gaining strength against the Japanese Yen. The heat map displayed percentage changes of USD against major currencies, indicating fluctuating exchange rates. The Indian Rupee remains a sensitive currency to external market factors, including crude oil prices, USD value, foreign investment levels, and RBI interventions in the FX market. Macroeconomic factors such as inflation, interest rates, GDP growth rate, balance of trade, and foreign investment flows also play a vital role in influencing the value of the Rupee.
Overall, the Indian Rupee faces challenges amid a cautious Fed approach and external market factors. Investors will closely monitor economic data releases, Fed speeches, and market sentiment to gauge the future direction of the INR. With various factors at play, including RBI interventions, macroeconomic indicators, and global market trends, the INR’s performance against the USD will continue to be influenced by a wide range of factors in the coming days.
