September 2, 2024
New Delhi, India
USDINR Today
The Indian Rupee (INR) lost ground on Monday, snapping a two-day winning streak during the early European session. The currency’s decline was driven by stronger USD demand, as the INR became the second-worst-performing Asian currency in August, primarily due to state-run banks’ robust USD buying.
Key Market Data:
- HSBC India Manufacturing PMI: Fell to 57.5 in August from 57.9 in July, missing market expectations.
- INR Performance: Depreciated by 0.2% in August, trading close to its lifetime low of 83.87 per dollar.
Factors Influencing the INR:
- Weaker PMI Data: The HSBC India Manufacturing Purchasing Managers Index (PMI) fell to 57.5 in August, below both the previous reading of 57.9 and market expectations, indicating a slight slowdown in the manufacturing sector. New orders and output mirrored this trend, with intense competition cited as a contributing factor.
- USD Strength: Strong demand for the US Dollar weighed on the INR, despite potential supportive factors like foreign equity inflows and lower crude oil prices. The USD’s strength was attributed to recent data and market anticipation of the US ISM Manufacturing PMI and Nonfarm Payrolls (NFP) reports, which could offer insights into the Federal Reserve’s future interest rate moves.
- FPI Inflows and Importer Demand: Slower foreign portfolio investment (FPI) inflows, particularly in equities, and increased dollar demand by importers also pressured the Rupee. Sonal Badhan, an economist at the Bank of Baroda, noted that these factors contributed to the currency’s decline in contrast to the broader global trend of currencies rising against the dollar.
Looking Ahead: Key Events to Watch
- US ISM Manufacturing PMI (August): Due on Tuesday, this report could provide further direction for the USD and, by extension, the INR.
- US Nonfarm Payrolls (NFP): Scheduled for release on Friday, the NFP data will be crucial in determining the Federal Reserve’s potential interest rate path. A weaker reading might put pressure on the USD, potentially easing some of the depreciation pressure on the INR.
Additional Market Insights:
- Economic Growth Slows: India’s GDP growth slowed to a 15-month low of 6.7% in Q1 FY24 (April-June), down from 7.8% in the previous quarter.
- Inflation Data: The US Personal Consumption Expenditures (PCE) Price Index rose 0.2% month-on-month in July, while the core PCE, excluding food and energy, also increased by 0.2% but was slightly below market expectations at 2.6% year-on-year.
- Federal Reserve Rate Cut Bets: Following the PCE report, traders have raised the probability of a 25 basis points rate cut by the Fed in September to around 70%, with a 30% chance of a 50 basis points cut, according to the CME FedWatch tool.
