The Indian Rupee (INR) has been trading on a softer note on Wednesday due to the increasing demand for the US Dollar (USD) from importers and speculations that the US Federal Reserve (Fed) might not cut interest rates in the near future. This demand for the USD has put pressure on the INR, limiting its upside potential in the short term. Despite this, the positive outlook for the Indian economy, supported by strong local equities and robust business activity, could help boost the INR and keep a lid on any significant depreciation against the USD.
India’s economy has shown signs of strength, with business activity expanding at its fastest pace in nearly 14 years in April. This growth can be attributed to strong demand and healthy economic fundamentals. The country is well positioned to be the fastest-growing major economy this year, with impressive growth rates in recent quarters. These positive indicators bode well for the INR’s resilience against the USD, despite the current demand dynamics.
Investors are closely monitoring the US March Durable Goods Orders, scheduled for release on Wednesday. Additionally, market participants will focus on the US preliminary Gross Domestic Product (GDP) Annualized for the first quarter and the final reading of the US March Personal Consumption Expenditures Price Index (PCE) later this week. These data points could provide further insights into the US economy’s performance and its impact on currency markets, including the USD/INR pair.
India’s HSBC Manufacturing Purchasing Managers Index (PMI) remained strong in April, indicating robust performance in both the manufacturing and service sectors. Increased new orders have driven the composite output index to its highest level since June 2010. In comparison, the US flash S&P Global Composite PMI and the Manufacturing PMI figures softened in April, reflecting a slower pace of business activity growth in the US. These contrasting trends could influence the USD/INR exchange rate in the coming days.
Technical Analysis of USD/INR Pair
On the technical front, the USD/INR pair continues to maintain a bullish bias on the daily chart, supported by trading above the 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) suggests a potential consolidation or downside correction before any significant appreciation of the pair. Key resistance levels for USD/INR are identified at 83.50, 83.72, and 84.00, while support levels lie at 83.10-83.15, 82.78, and 82.65. Monitoring these levels could provide traders with insights into potential price movements in the USD/INR pair.
The Reserve Bank of India (RBI) plays a crucial role in maintaining stability in the Indian financial markets, including the foreign exchange (FX) market. The RBI’s primary objectives include maintaining price stability, promoting economic growth, and managing the exchange rate to support exporters and importers. The central bank convenes bi-monthly meetings to discuss monetary policy decisions, which can impact the INR’s value against other major currencies.
Given the importance of trade to India’s economy, the RBI actively intervenes in the FX markets to prevent excessive volatility in the exchange rate. By buying and selling Rupees at strategic levels and using derivatives for hedging purposes, the RBI aims to protect importers and exporters from sudden currency fluctuations. This intervention helps maintain the stability of the INR and ensures a conducive environment for foreign trade activities.
The Indian Rupee’s performance against the US Dollar is influenced by various factors, including economic data releases, market sentiment, and central bank interventions. The positive outlook for the Indian economy and the RBI’s proactive measures play a vital role in shaping the INR’s value in the global currency markets. Traders and investors should closely monitor these developments to make informed decisions regarding their USD/INR trading strategies.