On Monday, the Indian Rupee (INR) opened sharply lower against the US Dollar (USD). The USD/INR pair also fell to some 85.55. This drop happens as the currency exchange market continues to deal with uncertainty about future of trends, and other economic factors from abroad. The pair fluctuates around the 20-day Exponential Moving Average (EMA), reflecting the lack of a clear direction in the near-term trend.
Against this backdrop, market analysts predict the USD/INR currency pair could experience continued volatility. A break below the key support level of 85.30 may expose the pair to the May 26 low of 84.78. Should it clear the May 22 peak of 86.10, it may quickly soar to more than 11-week highs. Look out for a possible breakout toward new highs above 86.70. The market is now looking to a series of possibly decisive data releases that will help shape these historical movements.
Reserve Bank’s Shift in Stance
The Reserve Bank of India (RBI) made the switch between “accommodative” and “neutral” just earlier in the week. This reversal marks a less US-China rivalry aggressive stance on monetary policy that may be bullish for the INR. Positive for Rupee Higher interest rates, especially real rates, are viewed as supportive of the Rupee as higher interest rates would attract foreign investment.
Moreover, a healthy growth rate in India will eventually translate into stronger overseas investment, which increases demand for the Rupee. In recent trading sessions, the Indian Rupee has demonstrated resilience, outperforming its peers during Asian trading hours, signaling investor confidence amid global economic fluctuations.
In a widely expected move, the RBI has chosen to lower the repo rate by 50 bps, from 6.0% to 5.5%. Further, they reduced the Cash Reserve Ratio (CRR) by 100 bps to 3% to release more liquidity into the market. In doing so, this move serves as a key component of a larger strategy to foster economic activity in a post-pandemic environment.
Economic Indicators on the Horizon
Market participants would be keen to catch the first signs of directional trend in the USD/INR pair. More so than usual, upcoming economic indicators will be crucial in shaping their decisions. On Tuesday, the US will be digesting the latest Consumer Price Index (CPI) data for May. This data will provide the first major look into inflation trends that will influence currency values. Headline CPI in the US increased by 2.5% year-on-year. Core CPI was higher than expected, ripping higher yet again at 2.9%.
The University of Michigan will publish preliminary one-year and five-year Consumer Inflation Expectations data for June. Beyond that, these figures will provide a clearer picture of consumer sentiment towards inflation and what that might mean for Federal Reserve policy, particularly in 2024.
“Export controls to be eased and rare earths to be released in volume.” – Kevin Hassett
This statement from Kevin Hassett highlights ongoing discussions around trade policies that may impact currency dynamics. Export Controls Recent changes to export controls offer another example of the far-reaching effects of US policy on international trade and currency valuation.
Market Sentiment and Future Projections
The 14-day Relative Strength Index (RSI) for the USD/INR pair currently floats around the 40.00-60.00 range. This placement indicates an overall lateral trajectory. Traders will remain skittish as they await clearer signals from the economic data and central bank communications.
Amidst the caution from foreign investors, market analysts are closely watching global trends alongside local developments that may be recreating investor sentiment. Increasing domestic economic performance and strong global factors keep the underlying bullish long-term trend for the Indian Rupee intact. Their interplay will profoundly shape its course.