USD/INR rises as equity outflows weigh on Indian Rupee

• The Indian Rupee extends the decline in Tuesday’s Asian session.
• Negative domestic markets and relentless foreign capital outflows weigh on the INR.
• Investors await the outcome of the US presidential election for fresh catalysts.

The Indian Rupee (INR) extends its downside on Tuesday after closing at a new all-time low in the previous session. The downtick movement of the local currency is pressured by continuous foreign outflows from the equity markets due to jitters amid institutional players ahead of the outcome of the US presidential election and the US Federal Reserve (Fed) interest rate decision on Thursday.

Nonetheless, the likely foreign exchange intervention from the Reserve Bank of India (RBI) by selling US Dollar (USD) could help limit the INR’s losses. Looking ahead, investors brace for the winner of the US presidential election, which may not be known for days after voting ends. On Thursday, the Fed monetary policy meeting will be closely watched.

Daily Digest Market Movers: Indian Rupee remains vulnerable amid US election-related uncertainty

• The HSBC final India Manufacturing Purchasing Managers Index (PMI) improved to 57.5 in October from an eight-month low of 56.5 in September and was above a preliminary estimate of 57.4.
• "India's headline manufacturing PMI picked up substantially in October as the economy's operating conditions continue to broadly improve," noted Pranjul Bhandari, chief India economist at HSBC.
• "The polls suggesting that Harris may have her nose in front in a couple of swing states is causing a bit of profit-taking in the Trump trade,” noted Kenneth Broux, head of corporate research FX and rates at Societe Generale.
• According to the IMF, India is now estimated to overtake Japan as the world's fourth-biggest economy by FY2025. The IMF forecasts that India's GDP will rise to $4,340 billion next fiscal year.
• Financial markets are now pricing in nearly a 98% possibility of a quarter point reduction and a near 80% chance of a similar-sized move in December, according to CME's FedWatch tool.

Technical Analysis: USD/INR keeps the positive bias

The Indian Rupee softens on the day. According to the daily chart, the constructive outlook of the USD/INR pair remains unchanged as the pair is well-supported above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) holds above the midline near 65.20, indicating that further upside looks favorable.

The upper boundary of the ascending trend channel of 84.25 acts as an immediate resistance level for USD/INR. A clear bullish candlestick above this level could pave the way to 84.50, en route to the 85.00 psychological level.

On the flip side, a breach of the lower limit of the trend channel near 84.05 could attract enough bearish pressure to 83.78, the 100-day EMA.