USD/INR stages a modest recovery, focus on RBI’s OMO

• Indian Rupee edges lower on Monday on the ongoing US Dollar (USD) demand.
• A lower US Treasury bond yields and RBI’s potential intervention might limit the INR’s downside.
• Investors will focus on the Federal Open Market Committee (FOMC) meeting and RBI's OMO sales.

Indian Rupee (INR) opens modestly lower on Monday on the ongoing US Dollar (USD) demand and equity-linked outflows. That being said, foreign investors have sold $1.19 billion in Indian equities in October. Nonetheless, a pullback in the US Treasury bond yields and the potential intervention from the Reserve Bank of India (RBI) might cap the further depreciation of INR.

Investors will closely monitor the Federal Open Market Committee's (FOMC) interest rate decision at the end of its two-day meeting on Wednesday. The markets anticipate the FOMC to maintain rates steady, despite the Fed’s preferred gauge for inflation, the Core Personal Consumption Expenditures Price Index (PCE) remains well above the 2% target rate.

Furthermore, market participants will keep an eye on whether the RBI starts selling bonds via open market operations (OMO) this week as liquidity improves. Apart from this, India’s Fiscal Deficit and Infrastructure Output for September will be released on Tuesday.

Daily Digest Market Movers: Indian Rupee struggles to gain amid uncertainty

• The US Core Personal Consumption Expenditure Index (PCE) came in at 3.7% YoY in September from the previous figure of 3.8%, matching the market consensus. The headline PCE arrived at 3.4% YoY vs the expectation of 3.4%.
• The Michigan Consumer Confident Index improved to 63.8, better than the 68 expected.
• UoM inflation expectations for a one-year period are expected to rise by 4.2%, while for a five-year period is expected to stay at 3%.
• Foreign investors sold $1.67 billion in Indian equities in October, which might exert pressure on the Indian Rupee.
• US Q3 GDP expanded at an annualized rate of 4.9%, above the market estimation of 4.2%.
• The Reserve Bank of India (RBI) is expected to meet with top bank officials this week to discuss the banking system's present liquidity condition.
• The RBI's monetary policy committee said the central bank will continue to keep an eye on maintaining inflation at the 4% target.
• RBI estimated that India's GDP would increase at a 6.5% annual rate in the current fiscal year.
• The International Monetary Fund (IMF) revised its forecast growth rate for India to 6.3% in October.
• Growth in India is expected to gain momentum for the remainder of 2023, according to the RBI's October bulletin.
• India’s Wholesale Price Index (WPI) for September, a measure of inflation, fell -0.26% YoY from the previous reading of 0.52%, worse than the market expectation of 0.50%.

Technical Analysis: The Indian Rupee remains confined in a familiar range

The Indian Rupee moves slightly lower on the day. The USD/INR pair trades within a range of 83.00-83.35. The upward bias of USD/INR remains intact as the pair holds above the 100- and 200-day Exponential Moving Averages (EMA) on the daily chart.

On the upside, any decisive follow-through buying above 83.35 will pave the way to year-to-date (YTD) highs of 83.45. The additional upside filter to watch is a psychological round mark at 84.00. On the other hand, the critical support level will emerge at 83.00, portraying the confluence of a low of October 20 and a round figure. A break below 83.00 could see a drop to 82.82 (low of September 12), followed by 82.65 (low of August 4).