USDINR Sustains the Upside. Is A Retest of ATH Imminent?

Summary:
• The Indian rupee is facing turbulence as heightened dollar demand in an electioneering period pushes USDINR higher.

USDINR rose for the third straight session on Wednesday, taking another shot at retesting its recent all-time highs. The currency pair traded at 83.58 at the time of writing, equivalent to a marginal 0.04 per cent increase in the intraday session. The token is now up by 0.18 per cent in the last week and is about 0.23 per cent below its all-time high. While that raises the prospects of an intervention by the Reserve Bank of India (RBI), it also points to an underlying strong demand for the dollar, which will continue putting the rupee under intense pressure in the near term.

The rupee’s underperformance is likely to be exacerbated by the electioneering period, which has triggered investor jitters. India is holding a six-week general election in which a historic 980+ million voters are eligible to vote. The voting period has seen a decline in the performance of Indian stock markets, with a notable selloff by foreign institutional investors. This is likely to translate into a heightened demand for the dollar in the short term, raising the prospect of a rise by USDINR to new highs.

Meanwhile, the HSBC India services PMI declined to 60.8 in April from 61.2 in March, missing the forecast figure of 61.7 However, the pressure on the Indian rupee could be eased by declining oil prices. The American Petroleum Institute (API) reported a rise in weekly crude oil stockpiles for the second successive week on Tuesday, sending oil prices down. This spells good news for the rupee as it means a decline in India’s expenditure on dollar-denominated crude oil.

Technical analysis

On the 30-minute chart, the USDINR pair is currently on an upward momentum, and the pivot is at 83.56. The buyers are likely to remain in control if they sustain the price action above this level, the momentum will likely move the rate above that to 83.60 mark, and potentially test 83.63 in extension. On the other hand, a slip below the pivot mark will likely favour the sellers, with support at 83.54. A continuation of the downside momentum will likely break the support and potentially test 83.50.