Indian Rupee, Nifty 50 May Fall. Virus Cases Grow, Consumption Falters

Indian Rupee, USD/INR, Nifty 50, US Dollar, India, Coronavirus – Talking Points

  • Indian Rupee and Nifty 50 could be at risk to losses ahead
  • Emerging market capital flows eyed, local auto sales slump
  • USD/INR may test key resistance as Nifty faces trend line

The Indian Rupee could be at risk to selling pressure as well as the local benchmark stock index, the Nifty 50. Over the past 24 hours, risk aversion engulfed financial markets as the S&P 500 dropped almost 6 percent. That was the deepest selloff in almost 3 months. Further risk aversion may reignite capital outflows from emerging markets, sending the Nifty 50 lower. This may also boost the haven-linked US Dollar.

Recent jitters from investors may have been due to worrying commentary from Federal Reserve Chair Jerome Powell. After Wednesday’s FOMC rate decision, Mr Powell offered a worrying outlook for the scope of an economic recovery from the coronavirus. This is as the central bank noticeably slowed the pace of expansion in its balance sheet, leaving financial markets perhaps yearning for more liquidity.

Meanwhile Covid-19 cases in India continue growing as the nation appears to struggle with flattening the curve. Yesterday, total confirmed reports surpassed 276k which was a 12.2% weekly jump. The country holds the most cases in the Asia region at the time of writing. This is as India lifted lockdowns in restaurants and places of worship on June 8, raising the risk of further infection waves given the absence of a vaccine.

Local economic conditions meanwhile may deteriorate further. According to the Federation of Automobile Dealers Associations (FADA), the first 10 days of this month saw ‘extremely low demand’ for automobile purchases. That speaks to a lower willingness to spend on discretionary goods, hurting overall consumption. Last week, Reserve Bank of India Governor Shaktikanta Das noted that growth momentum ‘is weak’.

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Indian Rupee Technical Analysis

The US Dollar could push higher against the Indian Rupee after USD/INR closed above near term falling resistance from the middle of April – blue line on the daily chart below. On the whole however, the pair remains in a consolidative setting with prices oscillating between support (74.95 – 75.27) and resistance (75.97 – 76.24). Pushing above the latter could bolster the bullish case for USD/INR from a technical standpoint.

USD/INR Daily Chart

Indian Rupee, Nifty 50 May Fall. Virus Cases Grow, Consumption Falters

USD/INR Chart Created in TradingView

Nifty 50 Technical Analysis

After topping recently at 10328, the Nifty 50 finds itself retesting the 9896 – 10012 inflection range. This area has its beginnings from lows set in March and October of 2018. This also followed a close under rising support from late May. Yet, it can be argued that the uptrend since late March remains intact. This could be upheld by the upward-slowing support from then – red line. Closing under the latter exposes 8806.

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Nifty 50 Daily Chart

Indian Rupee, Nifty 50 May Fall. Virus Cases Grow, Consumption Falters

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

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