August 1, 2024
New Delhi, India
Rupee Analysis
The Indian Rupee (INR) showed signs of recovery during Thursday’s early Asian session, benefiting from the decline of the US Dollar (USD). This movement follows the US Federal Reserve’s decision to maintain its interest rates unchanged in the range of 5.25%-5.50% during its July meeting. The dovish comments from Fed Chair Jerome Powell post-meeting have broadly undermined the Greenback.
Key Factors Influencing INR:
- Fed’s Dovish Stance: The Fed’s decision to hold rates steady and Powell’s indication of a potential rate cut in September have weakened the USD, aiding the INR’s recovery.
- Indian Equities Outflows: Despite the INR’s recovery, significant outflows from Indian equities and persistent USD demand from importers could limit further gains.
- Crude Oil Prices: Rising crude oil prices amid Middle East geopolitical tensions pose a downside risk to the INR, given India’s status as the third-largest consumer of oil globally.
- Chinese Yuan Fluctuations: Movements in the Chinese Yuan also impact the INR, adding another layer of complexity to its valuation.
Upcoming Data:
- Indian HSBC Manufacturing PMI: Traders are eagerly awaiting the release of the HSBC Manufacturing PMI data for July, which is expected to improve to 58.5 from the previous 58.3. This data will provide fresh impetus for the INR.
- US Economic Data: On the US docket, key releases include the ISM Manufacturing PMI, weekly Initial Jobless Claims, and the final S&P Global Manufacturing PMI. These figures will be closely watched for further USD movement.
Economic Growth Projections:
India’s Ratings and Research (Ind-Ra) has revised its economic growth projection for the current fiscal year to 7.5%, up from an earlier estimate of 7.1%. This new projection surpasses estimates from other entities, including the Reserve Bank of India (7.2%), the Economic Survey (6.5-7%), and the International Monetary Fund (7%).
Fed’s Future Actions:
During his press conference, Fed Chair Jerome Powell mentioned that an interest rate cut could occur as soon as the Fed’s next meeting in September, contingent on favorable data trends. The Fed will closely monitor the labor market and other economic indicators to guide its policy decisions.
Futures traders, as per the CME FedWatch Tool, now fully price in a 25 basis points rate cut by the Fed in September.
The Indian Rupee’s recovery is supported by a weaker USD following the Fed’s dovish stance. However, challenges such as equity outflows, higher crude oil prices, and Chinese Yuan fluctuations may limit its upside. The upcoming HSBC Manufacturing PMI data will be crucial for determining the INR’s near-term trajectory.
USDINR: 83.6880INR up +0.0080 at 11:04 A.M IST
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