May 21, 2024
New Delhi. India
INR Weakens: Dollar Demand and Equity Slide Drag Rupee Lower
The Indian Rupee continued its decline in Wednesday’s Asian session, pressured by persistent foreign demand for the US Dollar and a drop in local equities. The USD/INR pair remains subdued, hovering below the 100-day Exponential Moving Average (EMA), indicating a sustained bearish tone in the near term.
Key Drivers Behind INR Weakness
The Rupee’s weakness is largely attributed to corporate and custodial USD demand by foreign banks, along with pressure from a softening Chinese Yuan. Adding to the mix, rising crude oil prices and losses in domestic equity markets further dented investor confidence in the local currency.
“The Indian rupee opened a tad weaker and will remain in a range of 85.25–85.75 for the day as there is no fresh market indicator for it to change course,” noted Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP.
Trade Hopes Offer a Silver Lining
Despite headwinds, optimism brews around a proposed three-phase trade deal between India and the US. As per Bloomberg, the Indian government anticipates an interim agreement before July, ahead of the expected implementation of US President Donald Trump’s reciprocal tariffs. This deal could help cushion the Rupee from deeper losses.
Global Central Bank Focus: All Eyes on Fed Speakers
Investors are closely watching upcoming commentary from key US Federal Reserve officials. Atlanta Fed President Raphael Bostic said he foresees only one rate cut this year due to policy uncertainty linked to the new US tariff measures. St. Louis Fed’s Alberto Musalem echoed a cautious stance, stating current policy is appropriate if trade tensions ease. Meanwhile, Cleveland Fed’s Beth Hammack warned of potential stagflation risks amid ongoing economic uncertainty.
Fed’s Thomas Barkin is set to speak later today, and his remarks could offer further insight into the Fed’s policy trajectory.
Technical Outlook: USD/INR Faces Resistance at 100-Day EMA
Technically, USD/INR remains bearish below the 100-day EMA at 85.60. The 14-day Relative Strength Index (RSI) sits near the midpoint, suggesting neutral momentum and a potential for consolidation.
Support levels: 85.34 (May 19 low), 85.00 (psychological level), and 84.61 (May 12 low)
Resistance levels: 85.60 (100-day EMA), followed by the 85.90–86.00 zone
If bullish momentum picks up and the pair breaks above 85.60, it may attempt a retest of the 86.00 resistance, which also marks the upper boundary of the ongoing trend channel.
Looking Ahead
Traders now await India’s preliminary May PMI data, scheduled for Thursday, which will provide fresh cues on the country’s economic momentum. In the meantime, the Rupee remains exposed to global cues, especially from the Fed and oil markets.
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