The USD/INR currency pair has witnessed a recent weakening, capturing the attention of investors and market participants alike. This downward trend comes as anticipation builds for the release of Indian Purchasing Managers’ Index (PMI) data.
Indian Rupee Gains Ground on Weaker Dollar
The Indian rupee (INR) has managed to regain some lost ground in the face of a softer US dollar (USD). This movement is a result of various factors, including shifts in global currency markets and domestic economic indicators.
PMI Data: A Key Indicator
Manufacturing PMI Shows Improvement
In March, India’s manufacturing activity continued its upward trajectory. The HSBC Manufacturing Purchasing Managers’ Index (PMI) climbed to 59.2, an improvement from the previous reading of 56.9. This rise indicates a strengthening manufacturing sector, with increased production, new orders, and potentially higher employment levels within the industry.
Services PMI Eases Slightly
Conversely, the Services PMI experienced a minor setback. In March, it eased to 60.3 from the previous 60.6. Despite this marginal decline, the services sector in India still remains in a growth phase, as a reading above 50 on the PMI scale denotes expansion.
Market Awaiting PMI Releases
Market players are now on the edge of their seats, eagerly awaiting the release of the Indian HSBC PMI data. These figures will provide further insights into the health of India’s private sector, which consists of both manufacturing and services. Additionally, the US S&P Global PMI data due on Thursday will also have a significant impact on the currency markets. A strong US PMI could potentially strengthen the dollar, while a weak reading might further weigh on the USD/INR pair.
Other Influential Factors
Fed’s Dovish Stance
The dovish comments from Fed Chair Jerome Powell during the press conference have added to the selling pressure on the greenback. Powell’s remarks have signaled a potential shift in the Fed’s monetary policy, which in turn has created headwinds for the USD/INR pair.
Economic Projections in India
Krishnamurthy Venkata Subramanian, India’s executive director at the International Monetary Fund (IMF), stated that India needs to achieve sustained 8% growth to generate enough jobs and reduce poverty and inequality. Meanwhile, the Reserve Bank of India (RBI) has projected GDP growth for the next financial year at 7%, based on improved household consumption and an upturn in the private capex cycle.
Technical Analysis of USD/INR
From a technical perspective, the USD/INR pair has been facing rejection near the upper boundary of the descending trend channel. Since December 8, 2023, it has been stuck within a multi-month-old descending trend channel around 82.60 – 83.15. In the near term, the bullish outlook remains intact as the pair holds above the key 100-day exponential moving average (EMA) on the daily timeframe. The upward momentum is further confirmed by the 14-day relative strength index (RSI), which lies above the 50.0 midline, suggesting that further upside is possible. However, the key upside barrier for the pair is near the upper boundary of the descending trend channel at 83.15. A bullish breakout above this level could attract more buyers and push the pair back to a high of January 2 at 83.35, followed by the psychologically important 84.00 level. On the other hand, the first downside target is at the resistance-turned-support level at the 83.00 mark. Any selling below this level could extend the downswing to a low of March 14 at 82.80. Further south, the next contention level is located at the lower limit of the descending trend channel at 82.60. A breach of this level might drag USD/INR to a low of August 23 at 82.45.
As the market awaits the crucial PMI data, the future direction of the USD/INR pair remains uncertain, with multiple factors at play both in India and the United States.
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