USD/INR holds lower ground after strong Indian PMI data

The Indian Rupee (INR) holds the upper hand on Friday due to the extended rebound in the US Dollar (USD) and impressive India's June PMI data. The business activity in India for June rose at faster rates among manufacturing firms and their service counterparts. The advanced reading of the country’s HSBC Manufacturing PMI data rose to 58.5 in June from 57.5 in May. Meanwhile, the Services PMI climbed to 60.4 in the same reported period from 60.2 in May. This figure came in better than the market expectation of 60.0. In response to the stronger report, the INR edges modestly higher against the Greenback. 

Furthermore, the significant inflows into the Indian bond market ahead of India’s inclusion in the JPMorgan Emerging Market bond index at the end of this month are likely to boost the local currency in the near term. On the other hand, the renewed Greenback demand from local importers, likely capital outflows, and the weakening in the Chinese Yuan might exert some selling pressure on the INR. Additionally, the rally in crude oil prices might drag the INR lower as India is the third-largest consumer of crude oil in the world.

Investors will keep an on the Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) meeting minutes on Friday. On the US docket, the first reading of S&P Global Purchasing Managers Index (PMI) reports for June will be published.

Daily Digest Market Movers: Indian Rupee edges higher amid stronger PMI data 

• The headline HSBC Flash India Composite Output Index increased to 60.9 in June from 60.5 in May, suggesting a significant pace of growth that was consistent with the average over the previous 12 months.
• Foreign investors have sold a net of US$2.6 billion of local equities so far this calendar year, while US Dollar inflows into the debt markets have been strong at US$7.5 billion ahead of India’s inclusion in the JPMorgan Emerging Market bond index.
• Foreign inflows into Indian bonds could reach a decade-high of $2 billion around June 28, when they will be included in a widely-tracked JPMorgan index, although the RBI will lap up most of the USD to avoid the volatility in the INR, bankers said. 
• The preliminary India’s HSBC Services PMI is expected to drop to 60.0 in June from 60.2 in May. 
• US citizens who applied for unemployment insurance benefits increased by 238K in the week ending June 15. This figure was lower than the previous weekly gain of 243K and below the market consensus of 235K. 
• US Building Permits declined by 3.6% MoM in May from 1.44 million to 1.386 million, while Housing Starts for the same period dropped by 5.5% from 1.352 million to 1.277 million.
• Fed Bank of Richmond President Tom Barkin said on Thursday that the central bank is well-positioned with the necessary firepower for the job, but will learn a lot more over the next several months.  

Technical analysis: USD/INR holds bullish bias in the longer term

The Indian Rupee trades stronger on the day. The USD/INR pair keeps the constructive vibe unchanged as it holds above the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The bullish momentum is also supported by the 14-day Relative Strength Index (RSI), which remains above the 50-midline, supporting the buyers for the time being. 

Any follow-through buying will attract some buyers to the all-time high of 83.75. The next barrier will emerge at the 84.00 psychological level. 

On the downside, the initial support level for the pair is seen near 83.60, a low of June 20. The potential contention level to watch is the 83.30-83.35 region, the resistance-turned-support level, and the 100-day EMA. Extended losses will expose the 83.00 round figure.