The USD/INR currency pair has drifted lower to around 88.85 as the directional weakness of the US Dollar persists. Market analysts say that the recent shifts in the US Dollar Index (DXY) are wreaking havoc on the market. As of this writing, the DXY is trading modestly lower, just above the 99.15 mark. Traders are growing increasingly jittery about the economic outlook. That’s why they are counting the days until much-expected data releases from the United States might upend the global currency market.
This drop continues to move the USD/INR currency pair towards its major support level at 87.07, seen August 21st. It remains the strongest currency pair by far, typically oscillating near its all-time high of 89.12. Doubt still remains in the market as a result of a lack of concrete trade agreement between the United States and India. With more traders adjusting to these changes, the market’s eyes are focused on the forthcoming economic indicators that will guide the currency’s path.
Market Dynamics and Price Movement
The USD/INR pair fell just shy of 89 on Friday morning. This movement further underscores the generally bearish sentiment about the US Dollar. The dollar’s recent weakness is rooted in a confluence of factors. Perhaps most incredibly, at the time of writing, we see mounting evidence of an economic slowdown in the US. Analysts suggest that if inflation remains higher than India’s peers, it could adversely affect the currency’s strength.
Perhaps the DXY’s weakness is most remarkable, as it remains near its two-week low around 99.00. This decrease in the dollar index has made for a more dovish outlook on USD/INR. The USDCAD currency pair is literally struggling to keep its bullish momentum going. To be successful, it needs to remain above the 20-day Exponential Moving Average (EMA), now at 88.69.
“Starting from next week, we’re going to get a lot of economic data from the U.S., and we think it’s going to be pretty bad. I think that the market is now preparing for the coming deluge of poor U.S. economic data,” – Commonwealth Bank of Australia.
The expectation of bad incoming economic data has spurred a conservative environment across traders. Expectations for Federal Reserve (Fed) interest rate cuts in December are increasing. Consequently, the overall sentiment towards the dollar will likely become more negative.
Indicators and Technical Analysis
Technical indicators suggest that the 14-day Relative Strength Index (RSI) for USD/INR is trying to move back above 60.00. Failing to breach this threshold successfully above could portend new bullish momentum for the currency pair. Our broader near-term bias for USD/INR is constructive. This is largely due to it remaining above major moving averages, though it has edged down recently.
Market participants are parsing these indicators heavily. For one, they fret over the September inflation print coming out of India and the possible negative effect on investor sentiment. India’s Ministry of Commerce and Industry is ready to report a 0.6% drop in wholesale inflation on a year-over-year basis. This announcement should go a long way to establish positive market expectations about the rupee.
India’s economic growth rate is shooting through the roof! Such a spike would help bring additional FDI to India and increase demand for the rupee. Comparative inflation rates between India and its peers are beginning to come into focus. This sudden shift, despite being temporary, could affect future market confidence in the Indian currency.
Future Considerations and Economic Outlook
Currency traders are understandably interested in the interplay between US economic indicators. These indicators may have a huge impact on monetary policy. Beth Hammack stated, “Employment side of Fed mandate challenged amid job market softening, but the Fed needs to maintain some amount of policy restriction to cool inflation.” This administration’s view further adds to worries about labor market erosion and inflation management in the US economy.
Traders are looking ahead to key economic reports due out next week. If the data continues to indicate an economic slowing trend, it would deepen expectations of changes in Fed policy. Such developments would in all likelihood drive not just the USD/INR pair but financial markets at large.