• Indian Rupee (INR) extends gains for a second straight session despite the service sector remaining deep in contraction.
  • Indian stock market soars 2% across the week on improving risk sentiment
  • US Dollar (USD) expected to have a quiet session owing to US public holiday.
  • US Dollar Indian Rupee (USD/INR) exchange rate trades -0.1% at 74.64

The Indian Rupee settled +1% higher in the previous session and is extending those gains on the last trading session of the week. The Rupee is on track to have strengthened +1.2 this week, adding to 0.8% rally across the previous week.

The Rupee was holding onto gains despite data revealing that the crucial service sector contracted sharply in June. An extended lockdown imposed to stem the spread of coronavirus continues to paralyse the services industry, a key industry for jobs and economic growth.

The Nikkei/Markit service sector PMI pushed higher to 33.7 in June. This is up considerably from May’s 12.6. The level 50 separates expansion from contraction, meaning that the sector remains a long way from growth. This was the fourth straight month that the sector remained in contraction. The forward-looking indicators gave little hope of an imminent turnaround

The lockdown in India, which started 25 March, has been extended in some areas as India sees its number of infections increase to 600,000.

Analyst warned that unless India can bring the spread of the virus under control, the economic downturn will spill across into the second half of the year.

Whilst domestic data was less supportive of the Rupee, risk sentiment in the broader financial markets edged higher, offering some support to the Rupee.

The Indian Sensex closed 0.5% higher. It is on track to gain 2.1% this week after a 4% rally in the previous week. As foreign buyers of Indian equities increase, demand for the Indian Rupee increases.

The US Dollar trades flat in a quiet session given the US public holiday. Whilst on the one hand strong US non farm payrolls lifted sentiment, weighing on the safe haven US Dollar. However, rising US  coronavirus cases are also unnerving investors.