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30/08/24
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Strengthening Indian Rupee Faces Pressure from Oil Prices Ahead of GDP Release
The Indian Rupee (INR) demonstrated strength during Friday’s trading session, benefiting from a positive atmosphere in Indian equity markets. Despite a robust performance from the US Dollar, the upward trend in domestic stocks supported the INR. However, the potential for rising crude oil prices threatens to limit this advancement, as India remains one of the world’s largest oil importers.
On Friday, the market’s attention is focused on the release of India’s GDP data for the first quarter of fiscal year 2024-25, with growth expectations set at 6.9% year-on-year. Concurrently, the US Personal Consumption Expenditure (PCE) inflation data will also be pivotal. The insights from this report may provide indications regarding the Federal Reserve’s plans for rate adjustments in their upcoming September meeting.
The Indian Rupee’s current value is being influenced by substantial inflows into equity markets, driven by India’s increased representation in the MSCI Emerging Market Index, which could attract as much as $3 billion in foreign investment. This expected surge in foreign capital may lend stability to the Rupee in the short term.
Recent economic reports from the United States have shown encouraging results. The GDP growth for the second quarter was revised upward to 3.0%, signaling a stronger economy than initially estimated. Additionally, jobless claims fell, indicating a resilient labor market, with applications dropping to 231,000 for the week ending August 24.
Even though there are mixed signals about the timing of potential interest rate cuts by the Federal Reserve, consensus predictions have emerged, placing a 66% likelihood on a 25 basis points cut in September. The market is also contemplating a 34% chance for a more aggressive cut, reflecting an evolving economic landscape.
In terms of technical analysis, the USD/INR pair remains within a constructive framework. Despite hitting resistance near the 84.00 level, the broader bullish sentiment is underpinned by the currency trading above the critical 100-day Exponential Moving Average. The currency pair currently faces challenges around key technical levels, with fluctuations expected as traders assess ongoing market dynamics.
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