- The Indian Rupee loses momentum in Monday’s early European session.
- The risk-off sentiment, significant foreign outflows and US Dollar demand exert selling pressure on INR.
- The US ISM Services PMI data for July will be in the spotlight on Monday.
The Indian Rupee (INR) remains under pressure after falling to an all-time low at the open on Monday. The sell-off of the INR is backed by the risk-off environment, foreign outflows from India and other emerging markets, and US Dollar (USD) demand from importers. However, the FOMC’s dovish hold and weaker US July employment data might weigh on the Greenback and cap the pair’s upside. Furthermore, the Reserve Bank of India (RBI) is expected to intervene foreign exchange market to prevent the local currency from depreciating.
Looking ahead, investors will monitor the US ISM Services Purchasing Managers Index (PMI) on Monday, which is projected to improve to 51.0 in July from 48.8 in June. On Wednesday, the RBI interest rate decision will take centre stage, with no change in rate expected.
Daily Digest Market Movers: Indian Rupee remains vulnerable amid multiple headwinds
- Indian stock market benchmarks, the Sensex and the Nifty 50 faces some sell-off on Monday amid US recession fears and rising tensions in the Middle East. Around 6.45 GMT, the Nifty 50 was 2.70% down at 24,055, while the BSE Sensex was 2.78% down at 78,735.
- Indian HSBC Services PMI declined to 60.3 in July from 60.5 in the previous reading, weaker than the 61.6 estimated.
- “Service sector activity rose at a slightly slower pace in July, with new business increasing further, primarily driven by domestic demand. Looking ahead, services firms remained optimistic about the outlook for the year-ahead,” said Pranjul Bhandari, chief India economist at HSBC.
- The US Nonfarm Payrolls (NFP) increased by 114K in July, down from the revised-lower-figure of 179K in June and below the estimate of 185K, the Labor Department reported on Friday.
- The US Unemployment Rate rose to 4.3% in July from 4.1% in June, the highest level since November 2021.
- The Average Hourly Earnings eased to 0.2% month-over-month in the same reported period, below the market consensus of 0.3%. On an annual basis, the figure decreased to 3.6% from the previous reading of 3.8%.
- Financial markets have priced in nearly 74% odds for a 50 basis-point (bps) cut by the Fed at the September FOMC meeting.
Technical analysis: USD/INR’s bullish bias maintains strength
Indian Rupee weakens on the day. The positive stance of the USD/INR remains intact, with the pair holding above the key 100-day Exponential Moving Average (EMA) and being supported by the uptrend line since June 3 on the daily chart. The upward momentum is also underpinned by the 14-day Relative Strength Index (RSI), which stands above the midline near 65.0, suggesting a further upside looks favourable.
A decisive bullish breakout above the all-time high of 83.85 will attract some buyers to the 84.00 psychological level, followed by 83.50.
The first downside target emerges near the uptrend line around 83.75. A breach of this level will see a drop to 83.51, a low of July 12. The potential support level to watch is 83.47, the 100-day EMA.
US Dollar price in the last 7 days
The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.51% | 0.84% | 0.41% | 2.12% | -7.83% | -0.20% | -3.89% | |
| EUR | 0.51% | 1.39% | 0.93% | 2.67% | -7.28% | 0.35% | -3.36% | |
| GBP | -0.90% | -1.42% | -0.47% | 1.30% | -8.79% | -1.06% | -4.82% | |
| CAD | -0.44% | -0.96% | 0.46% | 1.70% | -8.31% | -0.63% | -4.36% | |
| AUD | -2.25% | -2.75% | -1.30% | -1.80% | -10.23% | -2.44% | -6.22% | |
| JPY | 7.28% | 6.83% | 8.11% | 7.69% | 9.35% | 7.11% | 3.67% | |
| NZD | 0.20% | -0.35% | 1.05% | 0.59% | 2.34% | -7.62% | -3.71% | |
| CHF | 3.74% | 3.24% | 4.60% | 4.14% | 5.78% | -3.81% | 3.55% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
