USD/INR drifts lower amid India’s foreign inflows, lower crude oil prices

• The Indian Rupee kicks off the new week on a positive note on Monday. 
• A positive economic growth outlook, significant India’s foreign inflows, lower oil prices support the INR. 
• Investors await the US Chicago Fed National Activity Index, Dallas Fed Manufacturing Business Index and Fed’s Daly speech on Monday. 

The Indian Rupee (INR) strengthens on Monday despite the firmer US Dollar (USD). The expectations of continued policy reforms following India’s general election results, a sustained economic growth outlook, and significant foreign inflows into Indian markets may have been factors that triggered the INR’s upside. Additionally, the decline of crude oil prices continues to underpin the local currency as India is the third-largest consumer of crude oil in the world.

Nonetheless, the stronger-than-expected advanced US Purchasing Managers Index (PMI) data and cautious approach from the US Federal Reserve (Fed) are likely to boost the Greenback and create a tailwind for USD/INR. On Monday, the US Chicago Fed National Activity Index for May and the Dallas Fed Manufacturing Business Index for June will be released. Also, the Fed’s Mary Daly is set to speak later in the day. 

Daily Digest Market Movers: Indian Rupee edges higher amid encouraging factors

• The Reserve Bank of India (RBI) published the Monetary Policy Committee (MPC) minutes on Friday, stating that the policy must continue to be actively disinflationary to ensure inflation is on course to its target level and fuller transmission.
• “Food inflation is the main factor behind the grudgingly slow pace of disinflation. Recurring and overlapping supply-side shocks continue to play an outsized role in food inflation,” said RBI Governor Shaktikanta Das in minutes.
• The first reading of India’s HSBC Manufacturing PMI data rose to 58.5 in June from 57.5 in May. Meanwhile, the Services PMI climbed to 60.4 in the same reported period from 60.2 in May, better than the market expectation of 60.0.  
• The flash US S&P Composite PMI climbed to 54.6 in June from a final reading of 54.5 in May. The US Manufacturing PMI rose to 51.7 in the same reported period from 51.3 in May and was stronger than the expected 51. The Services PMI improved to 55.1 in June from 54.8 prior, beating the estimation of 53.7. 
• US Existing Home Sales in May were lower than expected, falling to 4.11 million in May from 4.14 million in April, representing a contraction of -0.7% MoM. 

Technical analysis: USD/INR remains firm in the longer term

The Indian Rupee trades stronger on the day. Nonetheless, the USD/INR pair maintains the bullish bias on the daily chart beyond the key 100-day Exponential Moving Average (EMA), with the 14-day Relative Strength Index (RSI) holding above the 50-midline. This indicates that the support is more likely to hold than to break.  

The all-time high of 83.75 acts as an immediate resistance level for the pair. Any follow-through buying possibly sends the pair up to the 84.00 psychological level. 

On the bearish side, the initial support level for USD/INR will emerge at 83.43, a low of June 20. The crucial contention level is located in the 83.30-83.35 zone, representing the resistance-turned-support level and the 100-day EMA.