USD/INR holds steady despite weak Indian Services PMI data

The Indian Rupee trades modestly flat in Wednesday’s European session.
The Indian HSBC Services PMI came in at 58.4 in November vs. 59.2 prior, weaker than expected.
India's disappointing GDP data, foreign fund outflows and strengthening of the USD weigh on the INR.
Traders will monitor the US economic data and the Fed Chair Powell’s speech later on Wednesday.

Lallalit Srijandorn FXStreet

The Indian Rupee (INR) trades on a flat note on Wednesday after reaching its all-time low in the previous session. The latest data released on Wednesday showed that growth in India’s services sector weakened in November amid the steepest rise in prices for over a decade. The HSBC Services Purchasing Managers Index (PMI) arrived at 58.4 in November versus 59.2 in October, below the market consensus of 59.5. The Indian Rupee remains weak in an immediate reaction to the Services PMI report.

India's sluggish Gross Domestic Product (GDP) growth, persistent outflows in Indian markets, and significant US Dollar (USD) demand might continue to undermine the local currency in the near term. Nonetheless, the downside for the INR might be limited amid the foreign exchange intervention by the Reserve Bank of India (RBI) via USD sales.

Later on Wednesday, the US ADP Employment Change report, final S&P Global Services PMI, ISM Services PMI and the Fed’s Beige Book will be published. Additionally, the Federal Reserve’s (Fed) Chair Jerome Powell speech will be closely watched as it might offer some hints about the US interest rate outlook in the December meeting.

Indian Rupee appears weak amid geopolitical uncertainties

"The hiring surge reflected the sector's improving business confidence, growing new orders, and vigorous international demand," noted Pranjul Bhandari, chief India economist at HSBC.
“The RBI may also intervene in the dollar market to provide the rupee with some temporary strength, although broader economic factors will likely keep the rupee under pressure,” said Vishnu Kant Upadhyay, AVP - Research and Advisory at Master Capital Services Ltd.
The US JOLTs Job Openings increased from 7.372 million in October to 7.744 million openings in November, the US Bureau of Labor Statistics (BLS) reported on Tuesday. This reading was above the market consensus of 7.48 million.
San Francisco Fed President Mary Daly said on Tuesday that she sees inflation progress and a solid job market, adding that the central bank has to continue to recalibrate policy.
Chicago Fed President Austan Goolsbee noted, "Over the next year it feels to me like rates come down a fair amount from where they are now, but we meet every six weeks because the conditions change.”
Fed Governor Adriana Kugler stated that the US economy is in a good position after making significant progress in recent years toward our dual-mandate goals of maximum employment and stable prices.

USD/INR stays bullish in the longer term

The Indian Rupee trades flat on the day. The constructive outlook of the USD/INR pair remains unchanged as the pair is well supported above the key 100-day Exponential Moving Average (EMA). The path of least resistance level is to the upside as the 14-day Relative Strength Index (RSI) stands above the midline near 67.00, supporting the buyers in the near term.

The all-time high of 84.77 acts as the first upside barrier for USD/INR. A decisive break above the mentioned level could pave the way to the 85.00 psychological mark, en route to 85.50.

On the downside, a breach of the resistance-turned-support at 84.55 could drag the pair lower to 84.22, the low of November 25. The key contention level is located at 84.00, the 100-day EMA and round figure.

Economic Indicator

HSBC Services PMI

The Services Purchasing Managers Index (PMI), released on a monthly basis by S&P Global and HSBC Bank, is a leading indicator gauging business activity in India’s services sector. The data is derived from surveys of senior executives at private-sector companies. The index is a diffusion index calculated from a single question that asks for changes in the volume of business activity compared with one month previously. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the Indian Rupee (INR). Meanwhile, a reading below 50 signals that the services sector activity is generally declining, which is seen as bearish for INR.

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