USD/INR weakens ahead of RBI rate decision

• Indian Rupee gains some ground on the softer US dollar and lower US bond yields. 
• The Reserve Bank of India (RBI) is likely to keep the key rates unchanged at 6.5% for the sixth consecutive time.
• Traders await the RBI interest rate decision ahead of the US weekly Initial Jobless Claims and speech by Fed’s Barkin. 

Indian Rupee (INR) trades on a stronger note on Thursday amid the weaker US Dollar (USD) and a drop in US bond yields. The Reserve Bank of India (RBI) governor Shaktikanta Das will announce the bi-monthly monetary policy on Thursday, which is anticipated to maintain a status quo on the key interest rate.

The RBI Monetary Policy Committee (MPC) held a three-day meeting for the first policy decision of the calendar year 2024. The markets expect the committee to maintain the repo rate steady at the current level of 6.5% for the sixth consecutive time as inflation approaches the upper tolerance level of 6%. The Indian central bank raised its economic growth forecast to 7% from 6.5% due to encouraging signs in the Indian economy such as an expanding manufacturing PMI and robust growth. Nevertheless, the escalating geopolitical tension in the Middle East could potentially pose a threat, as it could cause disruptions in Red Sea shipping, resulting in elevated consumer prices.

The RBI interest rate decision will be in the spotlight on Thursday. Next week, attention will shift to the Indian inflation data and Industrial Production. Investors will monitor the developments surrounding India’s inflation trajectory.

On the US docket, the US weekly Initial Jobless Claims, and Wholesale Inventories will be released. Also, the Federal Reserve Bank of Richmond President, Thomas I. Barkin is set to speak later on Thursday. 

Daily Digest Market Movers: Indian Rupee stays firm ahead of RBI rate decision 

• India will account for one-third of the 3.2 million barrels per day (mb/d) of global oil demand between 2023 and 2030, according to the International Energy Agency (IEA).
• Finance Minister Nirmala Sitharaman said on Wednesday that India's debt-to-GDP ratio is well below other emerging markets.
• The Finance Minister added that India's retail inflation has stabilized within the 2–6% tolerance band, and core inflation has declined to 3.8% in December 2023.
• Microsoft CEO Satya Nadella said that India is one of the fastest-growing markets in the world, and AI could power 10% of the $5 trillion Indian economy by 2025.
• The Iranian-backed Houthi rebels' attacks on shipping in the Red Sea have interrupted traffic through the Suez Canal, which transports about 12% of global trade.
• Federal Reserve (Fed) Governor Adriana Kugler said that inflation is showing solid signs of slowing down, but she is not yet prepared to begin lowering interest rates. 
• Minneapolis Fed President Kashkari said that the Fed needs more time to get confidence on the inflation trajectory before beginning to cut rates. He suggested that two to three rate cuts would seem appropriate for 2024, based on current data. 

Technical Analysis: Indian Rupee extends the long-term range-bound theme

Indian Rupee stays in positive territory on the day. The USD/INR pair has traded within a two-month-old descending trend channel of 82.70–83.20. 

Technically, USD/INR maintains the bearish outlook intact in the short term as the pair remains capped below the key 100-period Exponential Moving Average (EMA) on the daily chart. The downward momentum is sponsored by the 14-day Relative Strength Index (RSI), which lies below the 50.0 midline, indicating that the possibility of the USD extending its downswing against the INR cannot be ruled out.

If the bears step back in, a low of February 2 at 82.83 acts as an initial support level for USD/INR. The additional downside filter to watch is the lower limit of the descending trend channel at 82.70. Any follow-through selling below the mentioned level will see a drop to a low of August 23 at 82.45, en route to a low of June 1 at 82.25.

If USD/INR sees sustained bullish pressure above the 83.00 psychological barrier, the confluence of the upper boundary of the descending trend channel and a high of January 18 at 83.20 could make for a good upside target. A break above 83.20 could pave the way to a high of January 2 at 83.35, en route to the 84.00 psychological level.