The USDINR pair set its third consecutive weekly gain last week. The pair inched higher to a multi-week high following the fears of slower economic growth in Asia amid mixed comments from the world’s major central bank. Further, a speculative jump in Crude oil prices which sparked near this year also weighed on the domestic unit.
The Reserve Bank of India decided to maintain the benchmark interest rate in its bimonthly monetary policy review on Thursday but gave a hint that it would tighten monetary policy if food prices cause inflation to rise.
The dollar strengthened to a one-month high after US consumer price inflation showed moderation in July, raising hopes that the US Federal Reserve would pause the rate hike.
In other places, ambiguous concerns about the Bank of Japan (BoJ) and the European Central Bank (ECB) along with conflicting pronouncements from officials of the Federal Reserve (Fed) and the Bank of England (BoE) weighed on the risk appetite.
Adding to this, growing fears of slower economic growth in Asia join mixed comments from the major central banks weighed on the sentiment.
With a light schedule and underwhelming yields, China’s warning against employing facial recognition technology joins the most recent Japan-China conflict and Sino-US disputes in dampening optimism.
Shattered investor and consumer confidence, shrinking demographics, property crisis and deflation indicated that the Chinese economy is still struggling.
All of the above factors are likely to add strength to the dollar against the Rupee.
Technical Outlook:
The USDINR pair witnessed its third consecutive weekly gain. After hitting its nine-month high 82.937 settled at 82.8490, gaining 0.24% on a weekly basis. While gained 0.30% on Friday.
A long-term consolidation was noted on the above chart. Since Dec 2022, the pair has been consolidating in between the levels of 82.9500-81.5025 on a closing basis, giving the shape of the rectangle triangle pattern.
Now it’s trading on the verge of multi-week resistance and a break above will confirm a 2%-3% upside move in the near future. Further, momentum indicators MACD and RSI are also giving a bullish direction. Adding to this, the pair is trading above its 20 SMA and 50 SMA.
All the above technical aspects indicate a bullish trend in USDINR; however, it would need to break its decisive resistance 82.9525 to test 83.55525-84.1025.
Alternatively, failure of the break will put pressure again and it could retest 82.25-81.85 on the downside.
Global factors are still fragile aftershocks of the US credit downgrade and disappointed China trade numbers and deflationary pressure. These developments, along with the Treasury’s declaration that it would be raising its bond issuance in the upcoming months, drove up US rates, strengthening the dollar via the interest rate channel.
Hence, the Indian Rupee movements will be the next big jitter for the local share market.