USD/INR bounces back as soft India's PMI growth weighs on Indian Rupee

The Indian Rupee (INR) gives back early gains and flattens against the US Dollar (USD) on Thursday. The USD/INR pair rebounds from the intraday low of 86.45 to near 86.53 as the Indian Rupee faces pressure, following moderate growth in India's preliminary HSBC Purchasing Managers' Index (PMI) data for June.

The report showed that the overall business activity grew at a moderate pace in July. The Composite PMI has come in at 60.7 against 61.0 in June, impacted by moderate growth in activities in the services sector. The Services PMI dropped to 59.8 from the prior reading of 60.4. Meanwhile, activities in the manufacturing sector remained upbeat and robust export order book suggests further expansion. The Manufacturing PMI came in higher at 59.2 against the former release of 58.4.

Another reason by the Indian Rupee retreating is the consistent outlow of funds by Foreign Institutional Investors (FIIs). Indian bourses saw an outflow of Rs. 4,209.11 crores worth of foreign investment on Wednesday, while indices extended their recovery move seen initially on Monday. So far, FIIs have sold Rs. 26,395.01 crores worth of equities in July.

On Wednesday, the Reserve Bank of India’s (RBI) monthly bulletin report for June showed that the overall business activity remained resilient due to a strong momentum in the services sector and summer-sown crops. However, the growth in industrial activity remained modest. Meanwhile, the Indian central bank has advised caution in financial market sentiment due to uncertainty in India-US trade agreement and mixed corporate earnings in the first quarter of the year.

Daily digest market movers: Indian Rupee resumes winning streak against US Dollar

• The Indian Rupee fails to hold initial gains against the US Dollar and resumes its five-day winning streak even as the market sentiment remains upbeat, following hopes that the United States (US) and the European Union (EU) are close to reaching a trade agreement ahead of the August 1 tariff deadline.
• A report from Financial Times (FT) showed on Wednesday that Washington and Brussels will strike an agreement, which will include 15% tariffs on imports from the European Union (EU). The report also showed that the shared continent accepted a higher baseline tariff rate to avert a damaging trade war, according to an EU official, following the announcement of the US-Japan trade agreement on Tuesday in which Washington slashed the baseline and automobile levy to 15% from 25%.
• A few weeks back, US President Donald Trump sent a letter to the European Commission (EC), dictating a 30% tariff rate, for failing to reach a trade pact during the 90-day pause period.
• The closure of trade pacts by the US with its key trading partners has diminished upside risks to global trade. This has led to a decline in demand for safe-haven assets. The US Dollar has also extended its downside on hopes of the US-EU trade deal. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto losses near a fresh over two-week low around 97.15 posted on Wednesday.
• In Thursday’s session, the flash US S&P Global PMI data for July will also remain on investors’ radar, which will be published at 13:45 GMT. The US PMI report is expected to show that overall business activity grew at a faster pace, driven by expansion in both manufacturing and the services sector.

Technical Analysis: USD/INR attracts bids and returns above 86.50

USD/INR rebounds above 86.50 on Thursday, aiming to revisit the fresh monthly high around 86.65, posted the previous day. The near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 86.15.

The 14-day Relative Strength Index (RSI) strives to break above 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.

Looking down, the 50-day EMA near 85.85 will act as key support for the major. On the upside, the June 23 high near 87.00 will be a critical hurdle for the pair.