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- Indian Rupee edges lower in Wednesday’s early European session.
- MSCI-driven outflows weigh on the INR, but lower crude oil prices and a weaker US Dollar might cap its downside.
- Traders will closely monitor the FOMC Minutes, which will be released later on Wednesday.
The Indian Rupee (INR) weakens on Wednesday. Foreign outflows worth $900 million from Zomato due to MSCI index rebalancing, along with the expectations of interest rate cuts by the Reserve Bank of India (RBI) weigh on the local currency. The month-end US Dollar (USD) demand from local companies and foreign banks might also contribute to the INR’s downside.
Nonetheless, concerns over US trade and fiscal policies undermine the US Dollar (USD). Additionally, a decline in Crude oil prices provides some support to the Indian currency, as India is the world’s third-largest oil consumer.
Traders await the release of India’s April Industrial Output and Manufacturing Output, which are due later on Wednesday. On the US docket, the Minutes of the Federal Open Market Committee (FOMC) will be in the spotlight. Also, the Richmond Fed Manufacturing Index for May will be published.
Indian Rupee loses traction on foreign outflows
- The local currency was expected to be in a range of 84.75 to 85.50, with an expectation of a Zomato outflow of $900 million due to the MSCI rebalancing, according to Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
- The US Consumer Confidence Index climbed to 98.0 in May from 86.0 (revised from 85.7), according to the Conference Board on Tuesday.
- US Durable Goods Orders declined by 6.3% in April, compared to a 7.6% increase in March (revised from 9.2%), the US Census Bureau showed on Tuesday. This figure came in above the market consensus of -7.9%.
- Federal Reserve (Fed) Bank of Minneapolis President Neel Kashkari said on Tuesday, “There’s no question the shock of tariffs is stagflationary.” Kashkari added that the officials should keep interest rates steady until there is more clarity on how higher tariffs affect inflation.
USD/INR retains a bearish bias under the key 100-day EMA
The Indian Rupee trades softer on the day. The USD/INR pair paints a negative picture on the daily chart, with the price holding below the key 100-day Exponential Moving Average (EMA). Further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline, indicating neutral momentum in the near term.
USD/INR seems to be finding some support near 84.78, the low of May 26. Sustained trading below this level could lead to a retest of 84.61, the low of May 12. The next bearish target to watch is 84.00, the psychological level and the lower limit of the trend channel.
On the other hand, the first upside barrier for the pair is seen at 85.55, the 100-day EMA. A decisive break above the mentioned level could pave the way to 85.75, the upper boundary of the trend channel. The additional upside filter is located at 85.10, the high of May 22.
