Highlights;
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The Indian Rupee (INR) reached a near all-time low of 88.45 against the US Dollar (USD) due to US tariffs and significant outflows from Foreign Institutional Investors (FIIs), which have totaled Rs. 38,590.26 crores in August.
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India’s Q2 GDP grew robustly at 7.8%, exceeding expectations, while investors await the US PCE inflation data, which could influence Federal Reserve monetary policy decisions.
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The USD/INR pair shows a bullish trend, nearing 89.00, supported by technical indicators such as the 20-day EMA and an RSI above 60, signaling potential further upside.
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The Federal Reserve is expected to cut interest rates by 25 basis points in September, with an 85% probability, driven by weakening labor market conditions and supportive remarks from Fed Governor Christopher Waller.
The Indian Rupee’s Struggles and Its Impact on the Market
Key Points:
- The Indian Rupee (INR) has dropped to a near 88.45 against the US Dollar (USD), facing multiple challenges.
- US tariffs and the outflow of Foreign Institutional Investors (FIIs) continue to negatively impact the INR.
- Investors are eagerly awaiting India’s Q2 GDP data and the US PCE inflation data for July.
The Indian Rupee’s Decline:
On Friday, the Indian Rupee reached a new all-time low against the US Dollar, with the USD/INR pair surging to near 88.45. This decline is attributed to higher tariffs imposed by the US on Indian imports, particularly for buying Russian oil, which now stands at a 50% import duty. These tariffs have weakened the competitiveness of Indian products globally.
Economic Indicators and Insights:
- The Reserve Bank of India’s bulletin highlights the downside economic risks posed by US tariffs, though domestic consumption remains strong, especially in rural areas.
- FIIs have continued their selling spree in Indian equity markets, offloading stakes worth Rs. 3,856.51 crores on Thursday and Rs. 38,590.26 crores in August. This outflow has impacted Indian benchmark indices like Nifty50.
Surprising GDP Growth:
Contrary to expectations, India’s Q2 GDP growth has been robust, expanding at 7.8% annually, surpassing the projected 6.6% and the previous quarter’s 7.4% growth.
Currency Performance:
The Indian Rupee was the weakest against the Australian Dollar, as indicated in the currency prices table, showing percentage changes of the INR against major currencies.
Market Movers:
- The USD/INR pair’s upward movement is primarily due to the INR’s weakness, as the US Dollar remains stable ahead of the US PCE inflation data release.
- The US Dollar Index (DXY) is near 98.00, and the upcoming PCE data will influence Fed policy expectations. Economists anticipate a 2.9% rise in core PCE inflation, potentially affecting interest rate decisions, with an 85% chance of a 25 basis point cut in September.
Technical Analysis:
The USD/INR pair shows bullish trends, supported by the 20-day Exponential Moving Average (EMA). The 14-day RSI above 60 signals potential bullish momentum, with resistance at 89.00.
Economic Indicator:
The Core PCE Price Index, the Fed’s preferred inflation gauge, measures price changes in goods and services, excluding volatile components. A high reading supports the USD, while a low reading may weaken it.
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