The Indian Rupee continues to hover near its record lows against the US Dollar, trading within the range of 84.00 to 84.10 on Friday. This stability comes despite ongoing challenges, primarily driven by persistent foreign outflows from Indian equities, reflecting a shift in investment strategies. Foreign Institutional Investors (FIIs) have been net sellers in the Indian stock market for the last 19 sessions, reallocating their investments to China, where recent stimulus measures have made valuations more attractive. Consequently, both the Nifty 50 and BSE Sensex indices are on track to record their fourth consecutive weekly declines.
The US Dollar is currently gaining strength, fueled by rising expectations that the Federal Reserve will adopt a more measured approach to interest rate cuts than previously forecasted. These sentiments are bolstered by speculation surrounding the potential for a second term for former President Donald Trump, particularly given his stance on inflationary measures, including higher tariffs and tax reductions. According to recent data, there is a high likelihood of a 25-basis-point rate cut in November, while the chances of a more substantial cut are negligible.
India’s economic landscape has seen positive movements as well, with the HSBC Composite Purchasing Managers Index (PMI) rising to 58.6 in October, indicating ongoing expansion in services activity for the 39th consecutive month. Manufacturing PMI has also improved, indicating healthy conditions in that sector. However, the broader economic environment remains cautious, particularly after discussions between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping aimed at improving bilateral relations.
In the backdrop, the Reserve Bank of India (RBI) has emphasized the importance of strengthening macroeconomic foundations to counter global risks. The RBI has been active in building its foreign exchange reserves. Current trends indicate that the USD/INR pair remains steady above the 84.00 mark, with technical analysis suggesting potential support around 84.03. If the pair breaks above the previous high of 84.14, it may further test upper resistance levels, reflecting investor sentiment and market dynamics closely.
