After a weak stretch, the Indian Rupee (INR) made some significant headway today. It gained by about 3% as the USD/INR rate declined from an intraday high near 85.70. As the American trading session got underway, the pair settled into support/resistance near 85.30. This movement is a continuation of the market forces at play despite the backdrop of major economic indicators and predictions.
India’s industrial production remained resilient, increasing by 2.7% y-o-y in April, above analysts’ forecast of 2.0%. The growth represented a monthly drop from a 3.0% uptick in March. Finally, manufacturing production turned out to be fairly robust, increasing to 3.4% over that time.
Even with this strong negative surprise in industrial output figures, the USD/INR pair showed little reaction. Market participants are treading carefully as they await several key data releases. In particular they are looking to see what India’s Gross Domestic Product (GDP) numbers for the first quarter, due out this Friday, will show. Economists on average predict the Indian economy would grow at an impressive 6.7% year-on-year. This is a positive development from the 6.2% growth rate registered in the last quarter. This growth has been propelled by strong domestic demand and a recovery in rural consumption.
The USD/INR pair climbed sharply at first, as the US Dollar firmed. This was indicative of risk sentiment, which became positive after upbeat US Consumer Confidence data and the easing of trade tensions. Despite all of this, the US Dollar Index (DXY) did not budge, a sign of a very risk-averse market sentiment.
According to Jateen Trivedi, Vice President Research Analyst at leading Indian brokerage firm LKP Securities, investor sentiment remains upbeat amid ongoing reforms.
“With major economic data lined up this week — including the US Fed Meeting Minutes, Q1 GDP, and core PCE Price Index — the Rupee’s trajectory will largely be guided by foreign fund activity in the secondary markets.” – Jateen Trivedi
Traders are eagerly awaiting the next set of economic indicators. Going ahead, the performance of the INR against the USD will depend critically on investor sentiment and direction of foreign fund flows.