USDINR Rises to Record Highs Despite Dollar Bearishness. What’s Happening?

Summary:
• The USDINR currency pair broke past the 84.00 mark on Monday at a time when impending Fed interest cuts are pressuring the greenback.

The downside to Indian assets markets’ exposure to the US economy was at play on Monday, as the USDINR currency pair rose to record highs. The pair hit an all-time-high of 84.04, after rising by 0.3 percent as of this writing, with the rupee reeling from the FUD sentiment setting in Indian stock markets. The Federal Reserve’s decision to delay interest rate cuts by at least another month has precipitated a sharp decline in the last three sessions, with the benchmark Nifty 50 down by 2.7 percent in the intraday session.

Many analysts opine that a Fed rate cut intervention in September could come in too late, possibly when the US economy will have entered a recession. Many of the Foreign Institutional Investors and retail investors in the Indian stock markets are from the United States. Also, one of the key factors that have been central to the rupee’s stability was India’s inclusion in the JP Morgan Emerging Markets Bond Index in late June. Therefore, the current uncertainty around the US economy could add to the downward pressure on the rupee.

Meanwhile, the July HSBC India Services PMI figures released on Monday came in at 60.3, falling below the forecast figure of 61.6 percent. That could also provide propulsion for USDINR in the day’s session.

USDINR momentum indicators

USDINR looks likely to extend the upside, going by the 2-hour chart. The pair has printed a long green candlestick, and has been trading above the Volume Weighted Moving Average (VWMA) as seen below. In addition, the Relative Strength Index (RSI) is at 81, signifying the strong hold by the buyers. However, that is deep inside the overbought territory, and a slowdown in the upside momentum.

Support and resistance levels

The USDINR currency pair will likely continue the upside if it stays above 83.80. However, that momentum could encounter the first at 84.06, although a longer control by the buyers could extend gains to break above the resistance and test 84.15. Alternatively, a downward momentum could set in if USDINR breaks below 83.80. That could result in further declines to establish the first support at 83.72. However, extended control by the sellers at that point could breach that mark, which will likely invalidate the upside narrative and potentially test 83.63.