The Indian rupee remained range-bound against the US dollar on Wednesday, March 6, 2024, trading flat at 82.90 in the early session. The domestic currency resisted downward pressure from a stronger greenback and volatile crude oil prices in the international markets. However, negative sentiment in the domestic equity markets and a slowdown in the services sector weighed on the rupee's performance.

To forex traders, the rupee found support from some fresh inflows of foreign funds, which helped offset the bearish factors. At the interbank foreign exchange market, the local unit opened at the previous day's closing level of 82.90 and oscillated between 82.89 and 82.91 against the US dollar.

Gaurang Somaiya, a forex and bullion analyst at Motilal Oswal Financial Services, noted that the rupee traded in a narrow range, and volatility remained low despite weakness in the dollar against its major crosses. He attributed the restricted movement in the Indian currency to the services Purchasing Managers' Index (PMI) data in the US, which showed slower-than-expected growth in the sector during February.

USDINR 1-Day price chart. (Source: TradingView)

Domestic and Global Factors

On the domestic front, India's services PMI data released on March 5th, 2024, were weaker than expectations, indicating a slowdown in the services sector's growth in February. However, some gains were seen in the rupee after the announcement that Bloomberg Index Services will include 34 Indian government bonds in its emerging market local currency indexes from January 2025, which could potentially boost debt inflows and benefit the currency.

Somaiya expects the spot (USD-INR) to trade sideways, quoting in the range of 82.80-83.05. Upcoming non-farm payrolls data in the US and Federal Reserve Chairman Jerome Powell's testimony before lawmakers are expected to provide further cues to market participants.

The dollar index, which measures the US currency's performance against a basket of six major currencies, inched up marginally by 0.01% to 103.76. On the commodities front, Brent crude futures, the global benchmark for oil prices, witnessed a slight increase of 0.13%, trading at $82.15 per barrel.

The Indian equity markets witnessed a decline, with the BSE Sensex trading 0.17% lower at 73,550.07 points and the NSE Nifty 50 shedding 0.18% to 22,315.70 points, reflecting the negative sentiment impacting the rupee. However, foreign institutional investors remained net buyers on Tuesday, purchasing shares worth ₹574.28 crore, as per exchange data.

The Asian Markets

Asian equities traded cautiously on Wednesday, with Chinese stocks declining as Beijing's lack of substantial stimulus measures disappointed investors. Precious metals and cryptocurrencies retreated after reaching record highs. Traders remained hesitant to take significant positions ahead of Federal Reserve Chair Jerome Powell's congressional testimony, which will be scrutinized for clues on potential rate cuts by the US central bank. 

MSCI's Asia-Pacific index, excluding Japan, slipped 0.21%, while Japan's Nikkei dropped 0.20% as investors booked profits after recent record highs. Chinese stocks fell a day after the government set a 5% growth target for 2024 at a parliamentary meeting devoid of major stimulus announcements. The CSI 300 Index lost 0.42%, whereas Hong Kong's Hang Seng gained 0.73%.

As the Indian rupee navigates conflicting global signals and domestic economic data, market participants will closely monitor developments in the US and India, along with central bank actions, to gauge the currency's future trajectory.