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- Indian Rupee trades with negative bias on Tuesday.
- The uncertainty surrounding India’s general election results and key US data weighs on the INR.
- India’s HSBC Services PMI and US ISM Services PMI for May will be released on Wednesday.
Indian Rupee (INR) weakens on Tuesday despite the softer US Dollar (USD). The INR trims gains as investors await more clarity about India’s official general election outcome. Early vote counting trends indicate that Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) is unlikely to win a decisive majority, as projected by exit polls over the weekend. However, a third consecutive win for the BJP-led government might boost investor confidence and lift the Indian Rupee. Furthermore, risk appetite and a decline in crude oil prices continue to underpin the INR as India is the third-largest oil consumer in the world.
India’s HSBC Services Purchasing Managers Index (PMI) and US ISM Services PMI for May will be published on Wednesday. The highlight of this week will be the Reserve Bank of India’s (RBI) monetary policy and the US Nonfarm Payrolls later on Friday. The stronger-than-expected US economic data might provide some support to the Greenback and cap the downside for the pair.
Daily Digest Market Movers: Indian Rupee loses around ahead of India’s election outcome
- India’s Prime Minister Narendra Modi’s BJP leads in 237 seats out of a total of 543 in early vote counting trends, per Reuters.
- Most exit polls projected the alliance led by Modi’s Bharatiya Janata Party (BJP) would win 303 seats in the 543-member lower house and likely get a two-thirds majority, enough to initiate amendments to the constitution, per Reuters.
- HDFC Securities FX research analyst, Dilip Parmar, said that the Indian rupee should gain “as we will see dollar inflows on foreign funds buying domestic equities and debt.”
- The Indian HSBC Manufacturing PMI dropped to 57.5 in May, compared to the previous reading and the market consensus of 58.4.
- The US ISM Manufacturing PMI declined to 48.7 in May from the previous reading of 49.2, weaker than the market expectation of 49.6.
- The US Nonfarm Payrolls (NFP) is estimated to see 190,000 job additions in May.
Technical analysis: USD/INR resumes bearish stance
The Indian Rupee trades softer on the day. The USD/INR pair turns bearish on the daily timeframe as the pair crosses below the key 100-day Exponential Moving Average (EMA) and the 14-day Relative Strength Index (RSI) remains capped below the 50-midline, suggesting the further downside looks favorable for the time being.
The potential support level for the pair will emerge at the 82.90–83.00 region, portraying the lower limit of a descending trend channel that has been established since mid-April and the psychological mark. A decisive break below this level will see a drop to a low of January 15 at 82.78, followed by a low of March 8 at 82.65.
On the upside, the first upside barrier is located near the 100-day EMA at 83.20. Any follow-through buying above the mentioned level will pave the way to the upper boundary of the descending trend channel at 83.40. Further north, the next hurdle is seen near a high of April 17 at 83.72 en route to the 84.00 psychological mark.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.40% | -0.25% | 0.15% | -0.21% | -0.46% | -0.57% | -2.02% | |
| EUR | 0.40% | 0.15% | 0.54% | 0.19% | -0.06% | -0.17% | -1.57% | |
| GBP | 0.25% | -0.15% | 0.39% | 0.04% | -0.21% | -0.32% | -1.75% | |
| CAD | -0.15% | -0.54% | -0.39% | -0.35% | -0.61% | -0.72% | -2.14% | |
| AUD | 0.21% | -0.19% | -0.04% | 0.35% | -0.25% | -0.36% | -1.79% | |
| JPY | 0.45% | 0.07% | 0.21% | 0.59% | 0.24% | -0.10% | -1.52% | |
| NZD | 0.56% | 0.17% | 0.32% | 0.71% | 0.36% | 0.11% | -1.41% | |
| CHF | 1.95% | 1.56% | 1.71% | 2.10% | 1.78% | 1.51% | 1.40% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
RBI FAQs
The role of the Reserve Bank of India (RBI), in its own words, is ‘..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.
The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.
Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.