The Indian Rupee (INR) is trading on a weaker note in Monday’s early European session, despite a weaker US Dollar (USD). Factors such as lower crude oil prices, strong foreign institutional inflows (FII) into the Indian stock market, and the possibility of an outsized Federal Reserve (Fed) rate cut at its upcoming monetary policy meeting might support the local currency. However, ongoing USD buying by importers and risk aversion ahead of key events could boost the Greenback. Investors are awaiting the Indian Trade Balance and US NY Empire State Manufacturing Index, which are due on Monday, as well as the Indian Wholesale Price Index (WPI) Inflation and US Retail Sales for August on Tuesday, and the US Federal Reserve interest rate decision on Wednesday.
The BSE Sensex closed lower on Friday, with the NSE Nifty also standing lower. Factors such as the falling US dollar index, expected interest rate cuts by the US Fed, a drop in crude oil prices, and consistent FII inflows into the Indian stock markets are seen as supportive factors for the rupee. However, the local currency remains weak against the US dollar. Reserve Bank of India Governor Shaktikanta Das has mentioned the expected growth rate for the country over the next few years as 7.5%, with upside possibilities. The University of Michigan Consumer Sentiment Index for September also showed improvement. The markets are currently pricing in a 48% possibility of a 25 basis points US rate cut and a 52% chance of a 50 bps cut at the upcoming meeting.
In terms of technical analysis, the USD/INR pair has broken below an ascending triangle on the daily chart, although it remains bullish in the long term as it is above the key 100-day Exponential Moving Average (EMA). Further consolidation is possible as the 14-day Relative Strength Index (RSI) indicates neutral momentum. The pair could see upside pressure leading to potential barriers at 84.50, while the initial support level is at 83.84. A break below this level could pave the way to the 100-day EMA at 83.68.
The Reserve Bank of India’s role is to maintain price stability while also considering growth, with a 4% inflation target primarily managed through interest rates. The RBI holds bi-monthly meetings to discuss monetary policy and potentially adjust interest rates based on inflation levels. FX market interventions are also carried out to maintain the exchange rate within a limited range, reducing currency risk for importers and exporters. The RBI uses various strategies, such as buying and selling Rupees in the spot market and using derivatives to hedge positions, to stabilize the currency market.
