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USDINR Slides As JP Morgan EM Debt Index Fuels Rupee Fightback

The Indian rupee gained against the US dollar on Thursday, with the USDINR pair going down by 0.1 percent in the intraday session to trade at 83.46. The pairs’s gains are attributed to the foreign inflows coming into the Indian economy ahead of the anticipated launch of the JP Morgan Emerging Market Debt Index.

Beginning Friday, June 28, India’s government debt will join the $213 billion JP EM Bond, with its initial weight placed at 1 percent, and set to rise gradually to constitute 10 percent of the index in the next 10 months. India’s $1 trillion sovereign bond market presents an attractive proposition for investors. Reuters reports that active fund managers have channeled $10.5 billion into the Indian bonds market since the announcement was made in September 2023. That is nearly six-times the amount received by the market in the previous two years to August 2023.

The Indian economy has been on an upward trajectory in recent years, and is projected to grow by 7.2 percent in 2024. Furthermore, its equities markets have been on an ascending trajectory in recent days with foreign inflows returning after the elections. These have favoured the rupee and will continue providing support. Also, the Reserve Bank of India has a $650 billion foreign reserve war chest, which it can use to intervene in the market whenever the USDINR exchange rate is too lopsided.  

Looking ahead into the day, investors will have their eyes on the US Initial Jobless Claims figures for fresh impetus into the USDINR trajectory.

Technical analysis

The momentum on USDINR is bearish-leaning as indicated by the RSI. The downward action will likely continue if resistance remains at 83.44, with the first support likely to come at 83.41. A break below that mark will strengthen the downside momentum, and could see the pair test 83.39 in extension. Conversely, a move above 83.44 will signal control by the buyers, and the upside momentum will likely meet the next resistance at 83.46. Continued control by the buyers could strengthen the upward momentum, potentially breaking the resistance and invalidating the downside narrative. Also, it could result in further upward gains to test 83.49.