Sat, June 15, 2024

Indian Rupee Slides Before Key PMI Data and Election Results

Global Markets and Crude Oil Prices Affected Indian Rupee

Quick Look:

  • Currency Movements: The Indian Rupee recovered against the USD ahead of key PMI data from India and the US.
  • Recent Price Changes: USD/INR saw its biggest weekly drop over two months due to month-end USD demand from importers.
  • Significant Developments: Potential BJP victory in India’s election could strengthen the INR, with the RBI likely to curb excessive depreciation.

On Monday, the Indian Rupee (INR) showed signs of recovery against a softer US Dollar (USD). At the time, the market was keenly awaiting the final readings of May’s Manufacturing PMI. This follows a period of increased traction for the USD/INR pair as it gained ground in anticipation of India‘s general election results. The fluctuations in currency pairs are a critical focus for investors, especially in the context of significant upcoming economic and political events.

Indian Rupee Sees Biggest Weekly Drop in 2 Months

Last Friday, the USD/INR pair experienced its most significant weekly drop over two months. This decline greatly affected the month-end demand for USD from importers. However, the pair saw a recovery on Monday, driven by the weakening of the USD. These price movements underscore the volatile nature of currency markets and the importance of domestic and international economic conditions.

Modi’s Expected Victory to Boost INR, RBI’s Role Crucial

The prospect of a third-term victory for Narendra Modi and the Bharatiya Janata Party (BJP) might bolster the Indian Rupee. Moreover, the Reserve Bank of India (RBI) is anticipated to step in to prevent excessive depreciation of the Rupee. On June 4, the vote counting for India’s general election will occur. Exit polls have suggested a likely win for the BJP, which could further rally the Indian Rupee. Investors closely watch these political developments as they significantly impact market sentiment and currency valuations.

India PMI Steady at 58.4, US PMI to Rise to 49.8

On Monday, the final reading of India’s Manufacturing PMI for May is projected to stay steady at 58.4, while the US ISM Manufacturing PMI is expected to improve from 49.2 to 49.8. These PMI readings are crucial indicators of economic health, reflecting the manufacturing sector’s performance. Friday’s market saw the 10-year Indian government bond yield closing at 6.9809%. This marks the sixth consecutive weekly decline and the most significant monthly loss in four years. Bond yields are often seen as a barometer of economic confidence, and recent declines suggest investor caution.

US PCE Index Up 2.7% YoY, Personal Spending Rises

In the United States, the Personal Consumption Expenditures (PCE) Price Index advanced by 0.3% month-over-month (MoM) in April and 2.7% year-over-year (YoY). The Core PCE increased by 0.2% MoM and 2.8% YoY. Additionally, US Personal Income rose by 0.3% MoM in April, with Personal Spending growing by 0.2%. These economic indicators provide insight into consumer behaviour and inflationary pressures, which are key factors influencing monetary policy decisions by the Federal Reserve.

USD/INR Bullish, Key Support at 83.21 and Resistance at 84.00

The outlook for Indian Rupee remains bullish, supported by key technical indicators. The 100-day Exponential Moving Average (EMA) provides a support level of 83.21, while the 14-day Relative Strength Index (RSI) is around 55.0, favouring buyers. Critical levels to watch include resistance at 83.40, 83.54, 83.72, and 84.00, and support at 83.21, 83.00, and 82.78. These technical levels help traders make informed decisions based on historical price patterns and market trends.

US Dollar Falls Against NZD, India’s Forex Reserves Dip

The US Dollar exhibited its weakest performance against the New Zealand Dollar recently, reflecting broader currency market dynamics. For the week ending May 24, India’s forex reserves stood at $646.673 billion, reflecting a decrease of over $2 billion from the previous period. Despite this, recent periods saw a growth of $10.8 billion over three weeks, indicating a record high previously at $648.7 billion. Changes in forex reserves are a key metric for assessing a country’s economic health and its ability to manage currency fluctuations.

Future of Indian Rupee Hinges on PMI Readings and Election Results

As market participants await crucial PMI data and election results, the Indian Rupee’s movements reflect a mix of local and global economic factors. The Indian Rupee’s recovery and the US Dollar’s broader performance are poised to influence future trends, with significant developments likely to emerge from both economic reports and political outcomes. The interplay of these factors will be crucial in shaping the currency market landscape in the coming weeks.

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