August 6, 2024
New Delhi, India
USDINR
The Indian Rupee (INR) shows signs of recovery in Tuesday’s Asian session, buoyed by a declining US Dollar (USD) and improved risk sentiment. Despite this, foreign outflows and global market influences may limit the upside potential. All eyes are on the Reserve Bank of India (RBI) interest rate decision on Thursday.
Key Highlights:
- Rupee Recovery:
- The INR rebounds on Tuesday, aided by a weaker USD and positive risk sentiment.
- Emerging market currencies, including the INR, benefit from improved global risk sentiment.
- Risk Sentiment Influence:
- The local currency’s gains may be restricted by fluctuating risk sentiment.
- On Monday, the INR hit an all-time low due to fears of a US recession and subsequent foreign outflows.
- Global Currency Dynamics:
- The unwinding trade, driven by rallies in the Chinese Yuan and Japanese Yen, poses a potential challenge for the INR.
- Expectations of deeper Federal Reserve rate cuts could put downward pressure on the USD, potentially supporting the INR.
- Federal Reserve Rate Cuts:
- Market participants anticipate a 50 basis points (bps) rate cut by the Federal Reserve in both September and November, with an additional quarter-point cut in December.
- RBI Interest Rate Decision:
- Traders are closely watching the RBI’s interest rate decision on Thursday.
- The RBI is expected to keep the repo rate unchanged at 6.5% due to higher food inflation risks.
- Market Movers:
- Indian HSBC Services PMI declined to 60.3 in July from 60.5, below the estimated 61.6.
- US ISM Service PMI rose to 51.4 in July from 48.8 in June, surpassing the estimated 51.0.
- US S&P Global Composite PMI fell to 54.3 in July from 55, worse than expected.
- Federal Reserve Insights:
- Chicago Fed President Austan Goolsbee emphasized the Fed’s readiness to respond to deteriorating economic or financial conditions.
- San Francisco Fed President Mary Daly noted the importance of upcoming job market reports in determining future actions.
- Market Expectations:
- According to the CME FedWatch Tool, there is now an 85% probability of a 50 bps rate cut by the Fed in September, a significant increase from last week’s 11.5%.
The Indian Rupee’s recovery is supported by a weaker US Dollar and positive risk sentiment. However, potential headwinds from foreign outflows and global currency dynamics could limit its upside. The upcoming RBI interest rate decision will be a crucial factor for market participants to monitor.
Disclaimer:
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