USD/INR remains under pressure on weaker US Dollar, likely RBI intervention

• Indian Rupee rebounds on the softer US Dollar on Thursday.
• The renewed USD sales and potential FX intervention from the RBI support the INR.
• Any development surrounding the changes to India’s structural reforms might weigh on the INR.
• The US weekly Initial Jobless Claims and Balance of Trade are due later on Thursday.

Indian Rupee (INR) recovers on Thursday amid the weaker US Dollar (USD). On Wednesday, the INR closed stronger on the back of USD sales from foreign banks and likely intervention from the Reserve Bank of India (RBI). Furthermore, Investors started to price in two interest rate cuts by the Federal Reserve (Fed) this year, which weigh on the Greenback and create a headwind for the pair.

The US weekly Initial Jobless Claims and Balance of Trade are due on Thursday. Investors will closely monitor the RBI's interest rate decision on Friday, with no change in rate expected. Also, the US Nonfarm Payrolls data will be in the spotlight. The stronger-than-expected data could boost the Greenback and cap the downside for USD/INR. Meanwhile, India faces multiple headwinds from the political shifts and downbeat PMI data. If there are changes to India’s structural reforms, this could exert some selling pressure on the Indian Rupee.

Daily Digest Market Movers: Indian Rupee recovers amid likely RBI intervention

• Benchmark Indian equity indices, the BSE Sensex and Nifty 50 gained on Wednesday, closing the session higher by about 3% each after logging their steepest fall in four years in the previous session.
• The HSBC India Services PMI dropped to 60.4 in May from the final 60.8 in the previous month. This was the 34th consecutive month of expansion in services activity although it registered the lowest mark since December 2023.
• “The election results are likely to keep both the rupee and bond yields volatile in the short run,” HDFC bank economist Sakshi Gupta said.
• Bharatiya Janata Party (BJP) has won 240 seats in the Lok Sabha elections, which was followed by the Indian National Congress winning 99 seats, and the Samajwadi Party winning 37 seats, according to the Election Commission of India’s (ECI) website.
• The US ISM Services PMI improved to 53.8 in May from 49.4 in April. This figure came in stronger than the estimation of 50.8.
• Traders are now pricing in a nearly 70% chance of a Fed rate cut in September, up from 54.9% at the beginning of the week, according to the CME FedWatch tool.

Technical analysis: USD/INR keeps the bullish vibe above the 100-day EMA

The Indian Rupee trades on a stronger note on the day. The positive outlook of the USD/INR pair remains intact as it broke above the descending trend channel that has been established since mid-April and holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. Nonetheless, the 14-day Relative Strength Index (RSI) hovers around the 50-midline, denoting a neutral level and suggesting that further consolidation looks favorable for the time being.

The resistance-turned-support level and the 100-day EMA at the 83.30-83.35 region act as an initial support level for the pair. A decisive break below this level would attract some sellers to the 83.00 psychological level, followed by a low of January 15 at 82.78.

On the other hand, the first upside barrier will emerge near a high of June 4 at 83.62. Further north, the next hurdle is seen near a high of April 17 at 83.72 en route to the 84.00 round mark.