Indian Rupee recovers early losses on GST reforms optimism

• The Indian Rupee claws back early losses against the US Dollar.
• FIIs continue to sell in the Indian stock market despite Indian PM Modi announcing tax reforms.
• Investors await Jackson Hole Symposium, flash India-US PMI data.

The Indian Rupee (INR) bounces back against the US Dollar (USD) during late trading hours on Wednesday after a weak opening. The USD/INR falls back to near 87.10 on optimism that the announcement of Goods and Services Tax (GST) reforms by the Indian government will boost consumption.

Indian Prime Minister Narendra Modi announced on Independence Day, August 15, that the government will cut taxes on certain goods around the Diwali festival in October.

Despite the tax cuts announcement, foreign investors continue to pare their stake in the Indian stock markets. On Tuesday, Foreign Institutional Investors (FIIs) sold Rs. 634.26 crores worth of equities from the Indian stock market. So far in August, FIIs have pared stake worth Rs. 24,274.692 crores. There was a mild buying by overseas investors on Monday worth Rs. 550.85 crores after Indian Prime Minister Narendra Modi announced a tax bonanza.

Additionally, ongoing trade tensions between the United States (US) and India over the latter buying Oil from Russia have also contributed to halting the rally in the Indian Rupee. The US has increased tariffs on imports from New Delhi to 50% for buying Russian Oil, citing that Moscow is utilizing that money to fund its defense requirements for killing people in Ukraine.

Meanwhile, the announcement of tax reforms by the Indian government has strengthened domestic equity markets. During afternoon trading hours, Nifty50 has posted a fresh, almost four-week high around 25,075. The rally in the 50-stock basket has been supported by upbeat performance from stocks in sectors relating to consumption, automobiles, and consumer discretionary items.

Going forward, investors will focus on the preliminary India’s HSBC Purchasing Managers’ Index (PMI) data for August, which is scheduled to be released on Thursday.

Daily digest market movers: US Dollar stabilizes ahead of Jackson Hole Symposium

• A decent recovery move in the USD/INR pair on Wednesday is also driven by strength in the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, refreshes a weekly high near 98.45. The Greenback strengthens as investors turn cautious ahead of the Jackson Hole (JH) Symposium, which is scheduled for August 21-23.
• Investors increase longs in the US Dollar on expectations that Federal Reserve (Fed) Chair Jerome Powell will maintain a hawkish guidance on the monetary policy outlook in his speech at the JH Symposium on Friday.
• “Given the relatively high bar for Powell to meet, there’s a bit of risk being baked into the markets that he leans to the hawkish side and the proverbial rug gets pulled from beneath investors,” analysts at Capital.com said, Reuters reported.
• Jerome Powell has been arguing that the monetary policy needs to remain restrictive until the central bank gets clarity about how much US President Donald Trump’s tariffs will impact inflation and the economy.
• According to the CME FedWatch tool, the odds of the Fed cutting interest rates in the September meeting are almost 85%. Traders raised Fed dovish bets after the US Nonfarm Payrolls (NFP) report for July showed signs of weak labor demand, and the Consumer Price Index (CPI) report for the same month signaled limited impact of tariffs on inflation.
• This week, investors will also focus on the flash US S&P Global PMI data for August, which will be published on Thursday.
• On the global front, a report from Politico has signaled that the White House is considering Budapest as a potential location for a trilateral summit between US President Trump, Russian President Vladimir Putin, and Ukrainian President Volodymyr Zelenskiy for further discussions on ending the war in Ukraine.

Technical Analysis: USD/INR falls below 20-day EMA

The USD/INR rebounds after a two-day losing streak to near 87.30 at open on Wednesday. However, the near-term trend of the pair has become uncertain as it has fallen below the 20-day Exponential Moving Average (EMA), which trades around 87.30.

The 14-day Relative Strength Index (RSI) finds cushion near 50.00. A bullish momentum would emerge if the RSI returns above 60.00.

Looking down, the July 25 high around 87.65 will act as key support for the major. On the upside, the August 11 high around 87.90 will be a critical hurdle for the pair.