August 19, 2024
New Delhi, India
USDINR Analysis
The Indian Rupee (INR) maintained its stability in Monday’s Asian trading session, trading flat despite multiple market pressures. While the softer US Dollar (USD) and falling crude oil prices lend support to the INR, foreign outflows and strong USD demand from importers continue to exert downward pressure.
Market Dynamics:
- RBI Intervention: The Reserve Bank of India (RBI) has been actively intervening in the forex market, which is likely to sell USD to prevent the INR from breaching the critical 84.00 level. This intervention has provided a cushion for the INR amid a volatile global economic environment.
- Crude Oil Prices: The decline in crude oil prices is another factor supporting the INR, as India is a significant importer of crude. Lower oil prices reduce the country’s import bill, easing pressure on the local currency.
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Challenges Facing INR:
- Foreign Outflows: India has been experiencing foreign portfolio investor (FPI) outflows due to an overheated equities market. Additionally, foreign direct investment (FDI) in the country fell by 3.5% in FY24, adding to the downward pressure on the INR.
- Strong USD Demand: Importers’ demand for USD remains robust, adding selling pressure on the INR despite the overall weakness in the US Dollar.
Economic Indicators to Watch:
- HSBC India PMI: The preliminary reading of the HSBC India Purchasing Managers Index (PMI) is set to be released on Wednesday. This data will provide insights into the country’s economic activity and could influence INR movements.
- US Federal Reserve Signals: Traders are keenly awaiting Federal Reserve Chair Jerome Powell’s speech this Friday, as well as the latest FOMC minutes. Dovish remarks from Fed officials could weigh on the USD, potentially providing some relief for the INR.
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Global Economic Context:
- US Housing Data: Recent data from the US showed a sharp decline in housing starts, which fell by 6.8% in July, and a 4.0% decrease in building permits. These figures have contributed to the bearish sentiment around the USD.
- Fed Rate Expectations: Markets are currently pricing in a 100% chance of a 25 basis points rate cut by the Fed in September, with a possibility of a larger 50 bps cut. This expectation has kept the USD under pressure, which in turn, has implications for the USD/INR pair.
The Indian Rupee is navigating a complex set of factors, with RBI intervention and lower crude prices offering support, while foreign outflows and strong USD demand limit its upside potential. As traders await key economic data and Fed signals, the INR is likely to remain range-bound in the short term. The upcoming HSBC India PMI and Fed Chair Powell’s speech will be crucial in determining the next direction for the INR.
USDINR was trading at 83.91 at the time of writing this news at 12:12 IST.
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