USDINR hovered near its all-time highs at 84.09 on Thursday, driven by increased demand for the US dollar and concerns over next week’s US elections. Also, the underperformance of the Indian equities market has injected significant volatility into the currency pair.
India’s benchmark Nifty 50 Index has declined by more than 6 percent this month, its worst performance since the March 2020 pandemic era. Foreign Institutional Investors have been taking profits in recent weeks after a prolonged uptrend by Indian equities. In total, their net sales are approaching the $11 billion mark, raising the demand for the dollar significantly.
That has also strained efforts by the Reserve Bank of India (RBI) to cushion the rupee. Nonetheless, the central bank is expected to keep selling the dollar in the near-term, and that will limit the USDINR upside. That said, the prospect of a Donald Trump win in next week’s US Presidential Elections could strengthen the dollar, thanks to his tax and trade policies.
However, the rupee also faces an onslaught from China’s stimulus program, which has seen foreign investors diverting significant portions of their funds to China’s equities markets. Chinese Manufacturing PMI rose to 50.1 percent in October, the first monthly growth since April. That could be intepreted to mean that the stimulus is yielding fruit, further reducing the leverage held by the Indian equities markets.
The momentum on USDINR favours the upside above the 84.08 pivot. That will likely see the pair move higher to encounter the first resistance at 84.09. However, if the buyers strengthen their hold of the market, they could break above that level and test 84.11.
Conversely, the sellers will be in control if the pair breaks below 84.08. In that case, initial support could come at 84.07. But a stronger downward momentum could break below that level to test 84.06. Also, such a move could invalidate the upside narrative.
This post was last modified on Oct 31, 2024, 09:37 GMT 09:37