Indian Rupee strengthens as Dollar weakens, traders await Fed rate decision

• Indian Rupee rebounds amid weaker Dollar in Asian session on Monday.
• Renewed demand for US dollars, capital outflows from India and geopolitical risks could weigh on the INR.
• The Fed is widely expected to keep rates unchanged at its July 30-31 meeting.

The Indian Rupee (INR) is gaining traction on Monday amid weakness in the US Dollar (USD). The upside in the INR is likely to be limited after hitting a record low last week, pressured by continued USD demand from oil importers and capital outflows from local Indian equities. Moreover, rising geopolitical risks in the Middle East could boost the safe-haven dollar ahead of key US events this week. On the other hand, traders expect the Reserve Bank of India (RBI) to continue intervening in the foreign exchange (FX) market to limit volatility. This, in turn, could limit the pair’s upside in the near term.

The US Federal Reserve (Fed) interest rate decision will be in focus on Wednesday, with no rate changes expected. Investors will take cues from Fed Chair Jerome Powell’s comments to gauge the future path of US interest rates. Any dovish comments from Fed officials or hopes of a rate cut by the Fed in September could drag the Dollar lower. Later in the week, attention will shift to India’s HSBC Manufacturing PMI on Thursday and US Non-Farm Payrolls for July on Friday.

Daily Market Wrap: Indian Rupee Rebounds Despite Multiple Headwinds

• The dollar-rupee pair is likely to move higher steadily with support “moving up to 83.45 while resistance at 83.85,” said Dilip Parmar, FX Research Analyst at HDFC Securities.
• Foreign investors have sold a net of around $1 billion worth of Indian stocks since July 23, when the Indian government proposed raising taxes on equity investment gains and on equity derivatives transactions.
• The attack on the Golan Heights on Saturday has raised concerns about a war between Israel and Hezbollah. Israel accuses Hezbollah of carrying out the attack on a football field, which killed at least 12 people, including children, and has vowed to react. However, Hezbollah denies involvement in the attack, according to the BBC.
• The U.S. Personal Consumption Expenditures (PCE) Price Index rose 2.5% on an annual basis in June, compared with 2.6% in May, in line with market consensus. On a monthly basis, the PCE Price Index rose 0.1% after remaining unchanged in May.
• U.S. core PCE inflation, which excludes volatile food and energy prices, rose to 2.6% over the same period, matching May’s increase and beating the 2.5% estimate. The core PCE Price Index rose 0.2% on a monthly basis in June, compared with 0.1% in May.
• The University of Michigan’s Consumer Sentiment Index jumped to 66.4 in July, better than the estimate and the previous reading of 66.

Technical Analysis: Indian Rupee bearish outlook remains intact

The Indian Rupee is trading on a stronger note on the day. The USD/INR pair keeps the bullish vibe unchanged as the chart shows an uptrend line while the price remains above the key 100-day exponential moving average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) is hovering above the midline near 58.90, suggesting that the long-term trend seems to be bullish.

Bullish candlesticks above the all-time high of 83.85 could attract enough buyers to push USD/INR towards the psychological level of 84.00.

The initial support level could be found at the uptrend line around 83.70. If the bearish momentum continues, look for further declines towards 83.51, a low from July 12. The next potential support level is seen at 83.44, the 100-day EMA.