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USD/INR: Dismal Data Sinks the Indian Rupee

USD/INR: Dismal Data Sinks the Indian Rupee

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USD/INR jumped +0.6% on Wednesday, snapping the rupee’s four-day winning streak, after economic data showed the Indian economy is in reverse.

Yesterday’s price action is in stark contrast to the previous day’s. On Tuesday, the Indian rupee posted its best day against the greenback in almost a year, closing at a five-week high of 78.58. However, a slew of negative data is in danger of reversing the rupee’s recent strength.

India’s Service PMI slumped to 55.5 in July from 59.2 the previous month. Composite PMI data for July also came in lower at 56.6 vs. 58.2 in June. The trade deficit number was even more worrying.

India’s trade deficit ballooned to $31.02 billion last month, a record low, and almost $5b wider than in June.

Where it not for a sharp decline in the price of oil, the rupee’s slide could have been much worse.

WTI oil slide -4% to multi-month lows Wednesday after an unexpected rise in US inventories and OPEC agreeing to increase production. India is the world’s third-largest importer of Oil, with around 90% of its supply priced in US dollars. Subsequently, lower oil prices should help to narrow the nation’s trade deficit moving forward.

US Data in Focus

Tomorrow investors will learn how the US labor market is holding up. The Nonfarm Payrolls (NFP) release is forecast to show the US economy added 270k new jobs in July vs a 381k increase in June. With the unemployment rate expected to remain stable at 3.6%. Due to the data’s significance, we can expect to see US dollar volatility should the releases surprise in either direction.

US Dollar to Indian Rupee Forecast

From a technical standpoint, yesterday’s move higher could be considered extremely bullish for the USD/INR pair.

The upside extension took the price back above the 50-Day Moving Average (DMA) at 78.73 (green line). Furthermore, the Relative Strength Index has turned higher, suggesting bearish momentum has reversed. Subsequently, the improving technical landscape could force traders to unwind bearish bets. With this in mind, the dollar could soon push towards the all-time high of 80.21 recorded in July.

That being said, a close back beneath the 50-DMA could put the bears back in the driving seat.

USD/INR Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.