At Totafx Capital, we closely monitor significant shifts in the forex market, and today the Indian Rupee (INR) finds itself under renewed pressure as Foreign Institutional Investors (FIIs) pull out of Indian equities. The USD/INR pair is trading in the range of 84.00 to 84.10, with the Rupee hovering near its all-time lows. Despite the challenges, the Reserve Bank of India (RBI) is actively intervening to prevent further decline.Foreign Institutional Investor (FII) Outflows & Impact on INR
Over the past month, India has witnessed a sustained outflow of capital as FIIs, which are critical to India’s capital markets, have been withdrawing their investments. This is primarily due to two factors:
- China’s Stimulus & Valuation Appeal: Recent economic stimulus measures in China have increased the attractiveness of Chinese assets. FIIs are reallocating funds to China due to favorable conditions and appealing valuations. This migration of funds is reducing liquidity in Indian markets, leading to pressure on the Rupee.
- Indian Market Weakness: Indian equity markets, including the Nifty 50 and the BSE Sensex, have been underperforming recently, with investors showing concerns over rising inflation, fiscal deficit, and the risk of slowing growth. This is the fourth consecutive week of losses for these indices, further undermining investor confidence in Indian assets.
The selling pressure from FIIs directly weakens the INR as it increases the supply of the Rupee in the forex market. This dynamic has contributed to the USD/INR pair stabilizing near the 84.00 range, a key psychological level.
The US Dollar’s Strength & Trump’s Influence
A significant factor supporting the US Dollar’s strength is the rising belief that former President Donald Trump may win a second term in the upcoming US elections. His return to the White House is seen as favorable to the US economy by many market participants because of his previous policies, such as lower taxes and higher tariffs, which could promote domestic growth.
Moreover, the Federal Reserve’s approach to interest rates is critical. With inflationary pressures still persisting in the US economy, the Fed is anticipated to cut rates by 25 basis points (as per the CME FedWatch Tool). However, expectations of larger cuts have diminished, keeping the USD supported as it maintains a relatively high-interest-rate environment compared to other economies.
FII Outflows & Market Sentiment
For the 19th consecutive session, FIIs have been net sellers of Indian stocks, reallocating capital to China due to attractive stimulus measures and better valuations. As a result, both the Nifty 50 and BSE Sensex indices are on track for their fourth consecutive weekly loss. These persistent outflows are creating downward pressure on the INR, though the RBI’s measures have helped mitigate the worst effects.
The US Dollar’s Strength
The US Dollar continues to strengthen, supported by growing expectations that the Federal Reserve will take a less aggressive stance on interest rate cuts than previously expected. Additionally, speculation around a potential second term for former President Donald Trump, driven by his economic policies, has bolstered the Greenback further. His stances on inflation, such as higher tariffs and lower taxes, are causing ripples in the global markets.
Key Market Movers
- According to the CME FedWatch Tool, the probability of a 25-basis-point rate cut by the Federal Reserve in November stands at 97%.
- Preliminary estimates from S&P Global show a rise in the US Composite PMI to 54.3, while the Services PMI has also exceeded expectations at 55.3.
- On the international front, Indian Prime Minister Narendra Modi and Chinese President Xi Jinping held their first formal discussions in five years, aiming to improve strained relations and enhance cooperation.
Technical Analysis: USD/INR Steady Above 84.00
The USD/INR pair remains steady above the 84.00 mark, testing the lower boundary of an ascending channel pattern. A breakdown below this support could signal a weakening bullish trend. Currently, the 14-day Relative Strength Index (RSI) remains below the critical 70 level, hinting at a continued bullish bias.
- Resistance: The pair may face resistance at the 84.14 level (all-time high). A break above this could push USD/INR toward 84.20.
- Support: Immediate support is seen at the nine-day Exponential Moving Average (EMA) around 84.03, aligning with the psychological level of 84.00.
At Totafx Capital, our analysis shows that while the INR remains under pressure, a combination of RBI intervention and global economic factors will continue to shape the pair’s performance. As always, traders should stay updated on market developments and adjust strategies accordingly.
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