USD/INR trades flat on the weaker US Dollar, RBI rate decision eyed

• Indian Rupee flatlines despite the softer US Dollar. 
• India’s S&P Global Services PMI improved to 61.8 in January from 59.0 in December, beating the estimation of 61.2.
• The Reserve Bank of India (RBI) interest rate decision on Thursday will be the highlight of this week.

Indian Rupee (INR) trades flat on the day amid the decline of the US Dollar (USD). India’s services sector expanded at its fastest rate in six months, owing to robust demand from domestic and external clients. The S&P Global India Services Purchasing Managers’ Index (PMI) surged to 61.8 from 59.0 in December. The final reading came in better than the preliminary estimate of 61.2, marking the 30th consecutive month of expansion above the 50-mark. 

According to the survey, business confidence improved further at the start of the final fiscal quarter. Services businesses reported their highest levels of optimism since September. In addition to strong demand, companies expect investment and productivity gains to induce output growth. 

The Indian economy has shown real resilience amid the high inflation and monetary policy tightening from the Reserve Bank of India (RBI). Meanwhile, the geopolitical conflict in the Middle East posed a threat to Indian growth as disruptions in Red Sea shipping could lead to an increase in consumer prices.

Moving on, the RBI Monetary Policy Committee (MPC) is scheduled to meet from February 6 to 8 and is likely to keep the repo rate unchanged for the sixth consecutive time at 6.5% on Thursday. 

Daily Digest Market Movers: Indian Rupee shows resilience amid the Red Sea geopolitical conflict

• OECD raised India’s growth outlook for 2024-25 (FY25) to 6.2% from the 6.1% forecasted earlier in its November outlook. 
• Indian S&P Global Manufacturing PMI for January climbed to 56.5 from 54.9 in the previous month.
• India’s foreign exchange reserve rose USD 591 million to USD 616.733 billion for the week ended January 26, according to the RBI.
• India’s fiscal deficit would be 5.1% for the year ending March 2025, lower than market expectations of about 5.3 to 5.4%. 
• The Indian government plans to trim the budget deficit to less than 4.5% by FY26.
• The finance minister emphasized on the potential for unprecedented development over the next five years. 
• The Reserve Bank of India (RBI) is anticipated to leave its benchmark interest rate unchanged at 6.50% on Thursday, according to economists polled by Reuters.
• The US ISM Services PMI rose to 53.4 in January from 50.5 in December, better than the market expectation of 52.0. 
• New Orders rose to a three-month high of 55.0. The Employment Index rebounded into expansionary territory, rising to 50.5. Finally, the Prices Index jumped to 64.0.
• Minneapolis Fed president Neel Kashkari said a strong economy and a possibly higher neutral rate of interest means the Fed can take time before deciding to cut the benchmark interest rate. 
• Fed Chair Jerome Powell stated that the central bank will proceed carefully with interest rate cuts this year. 
• The markets are now pricing less than a 20% chance of a March rate cut, according to the CME FedWatch tool. 

Technical Analysis: Indian Rupee is to stay in the range of 82.70–83.20

Indian Rupee trades on a flat note on the day. The USD/INR pair has oscillated within a descending trend channel since December 8. The bearish mood of USD/INR prevails for the time being as the pair is below the key 100-period Exponential Moving Average (EMA) on the daily chart and the 14-day Relative Strength Index (RSI) stands below the 50.0 midline, indicating that the path of least resistance level is to the downside. 

The first contention level near the lower limit of the descending trend channel at 82.70 might attract sellers. If so, the pair could resume its slide to the next downside target at a low of August 23 at 82.45, and finally, a low of June 1 at 82.25. On the upside, a decisive move above the 83.00 psychological mark will expose the upper boundary of the descending trend channel and a high of January 18 at 83.20. A bullish breakout from this level will see a rally to a high of January 2 at 83.35.