What’s going on here?
The Indian rupee closed at 83.8700 against the US dollar, up 0.1% from the previous session, thanks to positive Asian trends and upcoming $3 billion MSCI equity inflows.
What does this mean?
The rupee’s recent gain is a breath of fresh air, driven by upbeat Asian currency movements and significant inflows due to the increased weightage of Indian equities in the MSCI emerging market index. Nuvama Alternative and Quantitative Research projects this weightage increase could attract up to $3 billion, boosting domestic markets. A vice president at Shinhan Bank highlighted that stronger Asian currencies and robust domestic equity inflows have been crucial in supporting the rupee. However, with the USD/INR pair finding support at 83.70 and resistance at 84.00, these inflows might only offer temporary relief as depreciating pressures loom.
Why should I care?
For markets: Temporary lift, uncertain future.
While the expected $3 billion in equity inflows is a positive indicator, it might just be a temporary reprieve for the Indian rupee, which faces potential depreciating pressures ahead. Markets are now eagerly awaiting the core Personal Consumption Expenditure index data release after Indian market hours on Friday and the subsequent non-farm payroll data next Friday – crucial indicators that could affect USD/INR movements.
The bigger picture: Eyes on the Fed.
Market attention is also focused on the US Federal Reserve, with Chair Jerome Powell warning that any further cooling in the labor market would be unwelcome. While the Fed is prepared to adjust rates in September, it remains unclear if the cut would be 25 or 50 basis points. This uncertainty adds to the volatility of global currencies, including the INR, keeping the Reserve Bank of India on its toes to ensure stability in the coming months.
