USD/INR recovers its losses ahead of Indian, US CPI data

• Indian Rupee edges lower on the stronger US Dollar.
• Indian government bond yields and the Indian rupee will be influenced by domestic and US inflation data this week.
• Investors will take cues from the Indian and US CPI data ahead of the FOMC meeting.

Indian Rupee (INR) trades on a negative note on Tuesday amid renewed US Dollar (USD) demand. The Reserve Bank of India (RBI) left the benchmark repo rate unchanged at 6.50%, as expected last week. The RBI remains in a wait-and-see mode as it monitors inflationary risks. The Indian economy surpassed estimates in the September quarter, expanding 7.6%, making it the fastest-growing major country. The RBI forecasts a growth rate in India's GDP at 7.0% in FY24.

Domestic and US inflation data, as well as the Federal Open Market Committee's (FOMC) decision on interest rates, will all have an impact on Indian government bond yields and the Indian rupee this week. Market players have priced in a nearly 45.6% odds that FOMC will begin cutting rates from March 2024 and have priced in a 50% chance of 125 basis points (bps) of rate cuts in 2024, according to the CME FedWatch Tool.

Investors will keep an eye on the Indian Consumer Price Index (CPI) for November, Industrial Production, and Manufacturing Output. On the US docket, the CPI figures will be due on Tuesday. The attention will shift to the FOMC meeting on Wednesday, with no change expected.

Daily Digest Market Movers: Indian Rupee faces challenges from global headwinds

• According to the International Monetary Fund (IMF), Indian Real Gross Domestic Product (real GDP) is forecast to expand by more than 6.0% in both 2023 and 2024.
• Prime Minister Narendra Modi set an ambitious target to boost India to become a $5 trillion economy within the next five years.
• The Reserve Bank of India (RBI) Monetary Policy Committee decided to maintain the policy repo rate unchanged at 6.50% and keep the focus on the withdrawal of accommodation.
• RBI forecasted India's retail inflation at 5.4% in FY24, with 5.6% in Q3 and 5.2% in Q4 of FY24.
• The current expected growth rate for India's GDP in FY24 is 7.0%, with growth rates of 6.5% and 6.0% predicted for the third and fourth quarters, respectively.
• The US monthly Consumer Price Index (CPI) is expected to rise 0.1% from 0.0%, and the annual rate is estimated to ease from 3.2% YoY to 3.1%. The annual core CPI, which excludes volatile food and energy prices, is projected to remain steady at 4.0%.
• The markets widely expected the FOMC to leave interest rates steady at 5.25–5.50% for the third straight meeting on Wednesday.
• US Nonfarm Payrolls (NFP) surged by 199K in November from 150K in October, above the market consensus of 180K.

Technical Analysis: The Indian Rupee maintains a constructive outlook

Indian Rupee trades weaker on the day. The USD/INR pair has traded in a familiar trading band held over the past three months between 82.80 and 83.40. Technically, the bullish stance of USD/INR remains unchanged as the pair holds above the key 100-day Exponential Moving Average (EMA) with an upward slope on the daily chart. Meanwhile, the 14-day Relative Strength Index (RSI) remains above the 50.0 level, adding to the upward momentum.

A convincing breakout above the upper boundary of the trading range of 83.40 will pave the way to the next upside barrier at the year-to-date (YTD) high of 83.47, followed by a psychological round mark of 84.00. On the flip side, a breach below the key support level of 83.00 round figure will see a drop to the confluence of the lower limit of the trading range and a low of September 12 at 82.80. Further south, the next contention level to watch is a low of August 11 at 82.60.