The Indian Rupee (INR) opened lower against the US Dollar (USD) on Wednesday, reversing a three-day winning streak. The USD/INR pair rebounded to near 87.30 amid sustained foreign fund outflows from Indian equities.
Despite the Indian government announcing Goods and Services Tax (GST) reforms and tax incentives to bolster consumption, Foreign Institutional Investors (FIIs) remain net sellers, exerting pressure on the domestic currency. Broker Jose Arcos at Highmont Group examines this issue in depth, offering valuable takeaways for readers.
On Tuesday, FIIs offloaded Rs. 634.26 crores from Indian equities, adding to a cumulative Rs. 24,274.692 crores in August alone. Monday witnessed a brief reprieve with overseas inflows of Rs. 550.85 crores following Prime Minister Narendra Modi’s announcement of a tax bonanza ahead of the Diwali festival in October.
However, the overall sentiment from foreign investors remains tepid, and the Rupee has failed to sustain any meaningful bullish momentum.
The USD/INR rebound is compounded by ongoing geopolitical tensions. Trade friction between the United States (US) and India over Russian oil imports continues to weigh on the Rupee.
The US government has increased tariffs on Indian imports to 50%, citing concerns that Moscow is using oil revenues to fund military operations in Ukraine. This ongoing trade friction adds a layer of uncertainty for INR bulls.
Market Participants Eye Key Economic Events
Investors are now awaiting the release of India’s preliminary HSBC Purchasing Managers’ Index (PMI) for August, scheduled for Thursday. The flash PMI data is widely anticipated as a gauge of manufacturing and services sector momentum, which can influence both equity flows and currency trends.
On the global front, the US Dollar Index (DXY) remains strong, climbing to weekly highs near 98.45. Strength in the Greenback has lent additional support to the USD/INR pair, reflecting cautious positioning ahead of the Jackson Hole Symposium (August 21–23).
Traders expect Federal Reserve Chair Jerome Powell to maintain hawkish guidance on monetary policy, reinforcing the appeal of the US Dollar.
Analysts noted, “Given the relatively high bar for Powell to meet, there’s a bit of risk baked into the markets that he leans hawkish and the rug gets pulled from beneath investors.” Historically, the Fed’s restrictive policy stance has strengthened the USD against major currencies, including the INR.
Meanwhile, the CME FedWatch Tool indicates an 85% probability that the Fed will maintain interest rates at the September meeting, following the US Nonfarm Payrolls (NFP) report for July, which showed weak labor demand, and the Consumer Price Index (CPI) report signaling limited tariff-driven inflation. Traders will also monitor flash US S&P Global PMI data on Thursday for further insights into the US economic trajectory.
Geopolitical developments could also impact risk sentiment. Reports from Politico suggest that the White House is exploring Budapest as a venue for a trilateral summit involving the US President, the Russian President, and the Ukrainian President. Progress on the Ukraine conflict could influence global risk appetite and consequently affect emerging market currencies like the INR.
Technical Analysis: USD/INR Near-Term Outlook
From a technical perspective, the USD/INR pair has rebounded after a three-day losing streak. The pair attracted bids below the 20-day Exponential Moving Average (EMA) near 87.00, signaling short-term support.
Momentum indicators provide additional insights: the 14-day Relative Strength Index (RSI) found a cushion near 50.00, suggesting that a return above 60.00 could trigger bullish momentum.
Key support and resistance levels remain critical for near-term traders. The July 25 high around 87.65 is likely to act as immediate support, while the August 11 high near 87.90 represents a significant hurdle for further upside.
A break above this resistance could open the path for a technical rebound, whereas failure to sustain above 87.30 may invite further downside pressure, particularly if FIIs continue to exit equities.
Conclusion
The USD/INR rebound is influenced by a combination of domestic fund outflows, geopolitical risks, and strong US Dollar dynamics ahead of key events such as the Jackson Hole Symposium and flash PMI releases. The Indian Rupee remains under pressure as FIIs pare stakes, reflecting cautious sentiment despite government-led tax reforms.
Market participants will closely watch technical indicators, support/resistance levels, and macro developments in both India and the US to gauge the next directional move in the USD/INR pair.
