USD/INR extends rally ahead of India/US PMI data

• The Indian rupee softens in the Asian session on Tuesday.
• Renewed USD demand, volatile crude oil prices, external fund outflows undermine INR.
• On Tuesday, HSBC India Manufacturing PMI and US ISM Manufacturing PMI for September will be in focus.

The Indian Rupee (INR) is trading in negative territory for the third consecutive day on Tuesday. The decline in the local currency is pressured by strong demand for US dollars (USD) from foreign banks. In addition, volatile crude oil prices amid rising tensions in the Middle East and outflow of foreign funds are contributing to the decline in the INR.

However, anticipation of a further interest rate cut by the Federal Reserve could limit the upside for the pair. Investors will be watching the US ISM Manufacturing Purchasing Managers (PMI) index due on Tuesday. The Fed’s Raphael Bostic and Lisa Cook are also scheduled to speak. On the Indian front, the HSBC India Manufacturing PMI for September will be released.

Daily Digest Market Movers: Indian rupee remains sensitive to global factors

• “The rupee, after experiencing a decent appreciation, has started to move back towards its typical range. This shift is driven by end-of-month dollar demand from importers coupled with active currency management by the RBI,” said Amit Pabari, Managing Director at FX CR Forex Consultancy.
• India’s current account balance moved into a deficit of USD 9.7 billion in the April-June quarter (Q1) of 2024-25 (FY25), accounting for 1.1% of Gross Domestic Product (GDP), according to the Reserve Bank of India (RBI). .
• Fed Chairman Jerome Powell said Monday that the recent half-percentage-point interest rate cut should not be interpreted as a sign that future moves will be as aggressive. Powell added that further rate cuts are on the way, although their size and pace would depend on how the economy plays out.
• Powell also said the Fed’s current focus is to support a largely healthy economy and labor market, rather than bailing out a struggling economy or preventing a recession.
• Interest rate futures had a nearly 35.4% chance of a half-point cut in November, compared to a 64.6% chance of a quarter-point cut, according to CME’s FedWatch tool.

Technical Analysis: USD/INR bullish outlook prevails

The Indian rupee is trading on a weaker note on the day. The USD/INR pair is maintaining the bullish vibe in the daily time frame as the price is holding above the 100-day exponential moving average (EMA). However, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) is hovering around the midline, indicating neutral momentum.

The psychological mark of 84.00 seems to be a tough nut to crack for USD/INR bulls. A decisive break above this level could lead to a rise to 84.15, the August 5 high. The next upside barrier is seen at 84.50.

On the other hand, the 100-day EMA at 83.62 acts as an initial support level for USD/INR. Extended losses could pave the way to 83.00, representing the psychological level and May 24 low.