The Indian rupee sparked above the two-month high last week. The currency touched a high 83.4650 per U.S. dollar for the first time since late July, boosted by dollar sales by foreign banks and a rise in most of its Asian peers.
The Indian rupee was at 83.4650 against the U.S. dollar, its strongest level since July 9. The currency was up 0.2% on the day and on course to post its best single day since May 2024.
The Indian rupee closed at 83.5625 against the U.S. dollar, up from its close at 83.68 in the previous session.
Traders attributed the rupee’s strength to the Fed’s larger-than-expected 50 basis-point rate cut on Wednesday, as well as inflows into local stocks and bonds. Overseas investors have net purchased over $7 billion in Indian debt and equities so far in September, the highest monthly inflow since December 2023.
Further, benchmark Indian equity indices, the BSE Sensex and Nifty 50, hit record highs on Friday, closing up about 1.5% each. While inflows were “quite strong,” the rupee gave up some gains after dollar bids from state-run banks increased, according to a trader at a foreign bank.
The dollar index rose by nearly 0.1% to 100.8, while most Asian currencies gained between 0.1% and 0.6%. The offshore Chinese yuan, a closely watched peer currency of the rupee, climbed to a 16-month high of 7.04.
Investors are pricing in an additional 70 basis points of rate cuts by the Fed over 2024, suggesting that one of the central bank’s two remaining policy decisions this year could include another 50-bp cut. This is expected to add some gains on Rupee.
Technical Outlook – U.S. Dollar / Indian Rupee
The USD/INR pair retreated from a high of 83.91, made a low of 83.4650 before settling at 83.5650. The pair posted its biggest weekly drop of over 0.40% since December.
On the chart, a strong bearish candlestick formation is evident, and the pair is trading below its short-term moving average. Momentum indicators, such as the RSI, are also tilted in a negative direction. All technical indicators point to a bearish outlook in the near term.
However, the pair would need to break below 83.4350 to test the next support levels at 83.32 and 83.1850. On the other hand, any rise towards 83.5650-83.6650 is likely to face selling pressure.
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