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Indian Rupee, Nifty 50 Forecast: Breakouts Eyed as USD/INR Awaits GDP

Indian Rupee, USD/INR, Nifty 50, Reserve Bank of India, Indian GDP – Talking Points

  • Indian Rupee & Nifty 50 breakouts eyed, capital flows inward
  • Next week, Indian GDP could result in a repricing of assets
  • USD/INR eyeing long-term rising support, will the Nifty turn?

Despite what has been a fairly neutral week for the US Dollar, the Indian Rupee has been gaining aggressive ground against it. USD/INR recently closed at its lowest in over 5 months after idling since the beginning of July. This is as the Nifty 50, India’s benchmark stock index, pushed to its highest since late February. This further extended the recovery from March’s bottom.

Capital flows could be contributing to price action in these assets. On the chart below, Indian net foreign equity investment (month-to-date) just touched the highest since 2010. This could be a sign that investors are rather upbeat on economic recovery prospects and they are chasing yields in a globally depressed environment. The latter is a result of the coronavirus sprawling central banks into action to offset the economic toll.

The Reserve Bank of India (RBI) refrained from further cutting rates earlier this month amid near term inflation prospects. Since then, the Indian 10-year government bond yield has been rallying. It has just touched the highest since the middle of May. Reports also crossed the wires this week that the RBI refrained from intervening in FX markets, allowing capital inflows to freely impact INR.

Ahead, the Indian Rupee and Nifty 50 could see some trouble. On August 31, India will release second-quarter GDP data. Growth is anticipated to drop 19.2% y/y from +3.1% in the first quarter. Granted, the markets may have already priced in this outcome. More focus could be placed on future GDP expectations. That being said, a softer-than-expected result could throw off traders and result in a repricing in these assets.

India Net Foreign Equity Investment

Indian Rupee Technical Analysis

USD/INR broke under key support at 74.52 and confirmed the move, opening the door to further losses. However, the pair is on the cusp of facing critical rising support from July 2019. This could reinstate the focus to the upside. Another important level to watch for could be at 73.56 which is the 78.6% Fibonacci extension. A close under that exposes the 100% point at 73.04.

USD/INR Daily Chart

Indian Rupee, Nifty 50 Forecast: Breakouts Eyed as USD/INR Awaits GDP

USD/INR Chart Created in TradingView

Nifty 50 Technical Analysis

The Nifty 50 confirmed a breakout above the key 11317 – 11433 inflection zone. However, the index continues trading within a bearish Rising Wedge chart pattern. A daily close under the floor of the wedge may open the door to a reversal. This is as negative RSI divergence shows that upside momentum is fading which can at times precede a turn lower.

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Nifty 50 Daily Chart

Indian Rupee, Nifty 50 Forecast: Breakouts Eyed as USD/INR Awaits GDP

Nifty 50 Chart Created in TradingView

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter