USD/INR declines ahead of the CPI report from India.

USD/INR gathers strength amid US Dollar demand

  • Indian Rupee trades on a softer note on US Dollar demand. 
  • The higher-for-longer interest rate narrative in the US might lift the USD and cap upside in the INR.
  • The US GDP growth number for Q4 will be due on Wednesday. 

Indian Rupee (INR) edges lower on Monday amid US Dollar (USD) demand from oil companies and other importers. The hawkish comments from Fed officials about keeping the policy rate higher for longer might cap any substantial upside in the INR. However, the potential intervention from the Reserve Bank of India (RBI) might curb excess volatility in the INR. 

According to the minutes of the RBI’s latest policy meeting, the MPC agreed that the Indian economy is currently showing resilience on the growth front. However, the uncertainty, food inflation volatility, and geopolitical spillovers could cap the upside of the INR. 

Investors await the US Gross Domestic Product Annualized for the fourth quarter (Q4) on Wednesday and the Core Personal Consumption Expenditures Price Index (Core PCE) on Thursday. On the Indian docket, the GDP annual growth numbers and Federal Fiscal Deficit will be released on Thursday. The Indian S&P Global Manufacturing PMI for February will be published on Friday. 

Daily Digest Market Movers: Indian Rupee remains sensitive to inflation and geopolitical tensions

  • India’s foreign exchange reserves fell for the second week in a row, reaching a two-month low of $616.10 billion on February 16, according to the Reserve Bank of India. 
  • The RBI revised its growth forecast for the Indian economy to 7% for the current fiscal year, an increase from its earlier forecast of 6.5%.  
  • The RBI’s Monetary Policy Committee agrees on the need for caution amid uncertainties, while being optimistic about growth. 
  • The Indian economy, which grew at a four-month high in January, expanded further in February, with accelerations in both the manufacturing and services sectors.
  • Fed Governor Christopher Waller said the Fed should delay interest rate cuts by at least a few more months to see more evidence of inflation data. 

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Technical Analysis: Indian Rupee remains capped within the 82.70–83.20 range in the longer-term

Indian Rupee trades in negative territory on the day. USD/INR remains stuck within a multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023. 

The USD/INR bearish short-term outlook remains unchanged as the pair trades below the crucial 100-day Exponential Moving Average (EMA) on the daily chart. Furthermore, the 14-day Relative Strength Index (RSI) is below the 50.0 midline, suggesting the path of least resistance level is to the downside. 

The first support level of the pair will emerge at the lower limit of the descending trend channel at 82.70. A decisive break below the mentioned level could see a drop to the next downside target at a low of August 23 at 82.45 and a low of June 1 at 82.25.

On the flip side, the immediate resistance level is seen at the psychological round mark and the 100-day EMA at 83.00. Any follow-through buying will send USD/INR on track towards testing the upper boundary of the descending trend channel at 83.20, en route to a high of January 2 at 83.35, and finally a round figure at 84.00.