USD/INR recovers sharply despite upbeat flash India's PMI data

The Indian Rupee (INR) declines against the US Dollar (USD) during the European session on Thursday even as preliminary India's private sector Purchasing Managers’ Index (PMI) data for August has come in stronger. The USD/INR pair jumps to near 87.40 after rebounding from the three-week low of 87.10.

The report showed that the Composite PMI rises to near 65.2 from 61.1 in July as activities in both manufacturing and the services sectors expanded at a faster pace.

"The Services flash PMI touched an all-time high of 65.6, led by a sharp pick up in new business orders, both export and domestic. The Manufacturing flash PMI rose further, inching closer to the 60-mark, led by a smart rise in new domestic orders. Growth of new export orders, however, remained unchanged at July’s levels. Margins improved as the rise in output prices was much faster than that for input costs," Pranjul Bhandari, Chief India Economist at HSBC, said.

On a broader note, the Indian Rupee trades firmly as the announcement of Goods and Services Tax (GST) reforms by Indian Prime Minister Narendra Modi on the Independence Day has increased investors’ confidence that the Reserve Bank of India (RBI) will be reluctant to adopt an aggressive monetary easing approach.

On August 15, India’s PM Modi announced that the government will unfold GST 2.O in which taxes on goods will be reduced to boost consumption. The impact is clearly visible on Indian stock markets, which have risen significantly since the announcement. Nifty 50 is up almost 1.5% to near 25,070. The 50-stock basket hit a fresh four-week high around 25,150.

Contrary to Nifty50’s outperformance, overseas investors have been paring stakes from Indian equity markets consistently. So far in August, Foreign Institutional Investors (FIIs) have sold Indian equities worth Rs. 25,375.01 crores. On Wednesday, the selling figure by FIIs came in at Rs. 1,100.09 crores.

Indian Rupee retreats against US Dollar ahead of Jackson Hole Symposium

• Investors brace for a broader sideways trend in the USD/INR pair as they await Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium on Friday.
• During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades in a tight range around 98.25.
• Investors will closely monitor Fed Powell’s speech to get cues about whether the United States (US) central bank will cut interest rates in the September meeting.
• According to the CME FedWatch tool, there is an almost 85% chance that the Fed will cut interest rates by 25 basis points (bps) to 4.00%-4.25% in the September meeting.
• The Federal Open Market Committee (FOMC) minutes of the July monetary policy meeting, released on Wednesday, showed that a majority of officials, including Chair Jerome Powell, argued against the need for any monetary policy adjustment until they get clarity on the magnitude and persistence of higher tariffs’ effects on inflation," Reuters reported.
• According to FOMC minutes, two members who supported the need to unwind monetary policy restrictiveness were Fed Governor Michelle Bowman and Christopher Waller. They prioritized cooling labor conditions over risks of de-anchoring consumer inflation expectations.
• Meanwhile, US President Donald Trump has attacked the Fed’s independence again as he has called Fed Governor Lisa Cook to resign after his political allies accused her of holding mortgages in Michigan and Georgia. In response, Cook has stated that she had "no intention of being bullied to step down" from her position at the central bank, Wall Street Journal (WSJ) reported.
• In Thursday's session, investors await the US S&P Global PMI data for August, which will be published at 13:45 GMT. The data is expected to show that the overall business activity grew at a modest pace. The Manufacturing PMI is expected to come in at 49.5, down from 49.8 in July, suggesting that the activity contracted at a faster pace. The Service PMI is also seen lower at 54.2 from the prior release of 55.7.

Technical Analysis: USD/INR finds buyers' interest below 20-day EMA

USD/INR attarcts bids near 87.00 on Thursday and strives to return above the 20-day Exponential Moving Average (EMA), which trades around 87.28.

The 14-day Relative Strength Index (RSI) recovers from 50.00. A fresh bullish momentum would emerge if the RSI breaks above the 60.00 level.

Looking down, the July 28 low around 86.55 will act as key support for the major. On the upside, the August 11 high around 87.90 will be a critical hurdle for the pair.