Indian Rupee May Fall as US Dollar, USD/INR Rise on Virus Cases

Indian Rupee, US Dollar, USD/INR, Coronavirus, RBI, India – Talking Points

Indian Rupee declined as gauge of local manufacturing activity fell
Increasing Indian coronavirus cases may prolong social distancing
USD/INR may gain down the road but faces fading momentum now

Indian Rupee Declines as US Dollar Gains, Where to?

Indian Rupee selling pressure was reignited against the US Dollar in the aftermath of last week’s emergency rate cut from the RBI. In addition to cutting benchmark lending rates, the Reserve Bank of India dialed up long-term repurchasing operations in an effort to boost liquidity conditions amid the coronavirus outbreak. Earlier this week, the RBI also increased short-term funding limits by 30% across the country

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These measures are certainly welcome. Moody’s – a credit ratings agency – downgraded the outlook for Indian banks to negative from stable. Prior to the virus pandemic, the country was attempting to overcome from a troubled banking sector. Meanwhile the latest Markit manufacturing PMI print showed local growth at its weakest since November after making a sharp U-turn following January – see chart below.

The latest reading of confirmed coronavirus cases in India are at 2,543 at the time of writing – see next chart below. That is up 27.27% from Wednesday. India’s Prime Minister Narendra Modi imposed a 3-week nationwide lockdown towards the end of March. If cases continue to grow exponentially as more citizens are tested, social distancing measures might be extended which may further hurt growth.

Over the next 24 hours, USD/INR may focus on key US economic data. Non-farm payrolls are expected to shrink -100k last month which would be the weakest since 2010. A softer-than-expected outcome risks deteriorating market sentiment and fuel demand for the haven-linked US Dollar. That may push USD/INR higher as emerging markets grapple with capital outflow risks.

USD/INR Versus Indian Coronavirus Cases

USD/INR Chart Created in TradingView

Indian Rupee Technical Analysis

On a daily chart, USD/INR is attempting to breach the March peak after prices stopped short of the 38.2% Fibonacci extension at 76.67. Negative RSI divergence is present and warns that upside momentum is fading. If that precedes a turn lower, rising support from February may maintain the dominant upward trajectory – pink line. Otherwise resuming the uptrend towards the midpoint of the extension at 77.38.