USD/INR gathers strength ahead of the US PPI, Fed rate decision

• Indian Rupee loses traction on the modest US Dollar (USD) demand.
• Indian Consumer Price Index (CPI) surged 5.55% YoY in November vs. 4.87% prior, Food Inflation climbed to 8.70% vs. 6.61% prior.
• Market players will closely watch the Fed interest rate decision and the press conference.

Indian Rupee (INR) extends its downside amid modest US Dollar (USD) strength. Data released on Tuesday revealed that the Indian Consumer Price Index (CPI) came in higher than the Reserve Bank of India (RBI) target of 4.0%. Although headline inflation remained within its tolerance range of 2–6% for the third consecutive month, it has surpassed the medium-term target of 4% for the past 50 consecutive months.

Furthermore, the Consumer Food Price Index, which measures food inflation, increased by 8.70% in November from 6.61% the previous month. Last week, the RBI Monetary Policy Committee decided to keep the policy repo rate steady at 6.50%, and the MPC stated that they will closely monitor any indications of food price pressures.

Investors await the US Producer Price Index (PPI) on Wednesday ahead of the Federal Reserve (Fed) monetary policy meeting. The annual PPI figure is forecast to ease from 1.3% to 1.0% in November, while the PPI rate ex Food & Energy is expected to drop from 2.4% to 2.2% in the same period. The highlight will be the Fed interest rate decision, with no change expected. Nonetheless, investors will examine Fed Chair Jerome Powell’s comments after the meeting for fresh impetus.

Daily Digest Market Movers: Indian Rupee weakens amid higher inflation concern

• India’s Consumer Price Index (CPI) surged 5.55% YoY in November from 4.87% in October, according to the Ministry of Statistics & Programme Implementation.
• Indian Industrial Production for October reached a 16-month peak, rising by 11.7% compared to a 4.1% increase in the previous reading.
• Indian Manufacturing Output for October came in at 10.4% MoM versus 4.9% prior.
• The International Monetary Fund (IMF) stated that India’s economy will be one of the fastest-growing in the world over the next few years, estimating Real Gross Domestic Product (real GDP) to expand by more than 6.0% in both 2023 and 2024.
• According to the National Securities Depository, foreign investors allotted  $3.7 billion in Indian equities and $800 million in debt over the six sessions in December.
• US inflation, as measured by the Consumer Price Index (CPI), climbed 0.1% MoM in November from 0% in October, while the annual CPI eased from 3.2% to 3.1% in November.
• The Core CPI, which excludes volatile food and energy prices, rose to 0.3% MoM from 0.1% in the previous month. On an annual basis, the Core CPI figure grew 4.0% YoY, matching expectations.
• The markets anticipate the Fed to maintain the benchmark overnight borrowing rate in a range between 5.25% and 5.50% at its December meeting.

Technical Analysis: Indian Rupee's constructive outlook remains unchanged

Indian Rupee trades on a softer note on the day. The USD/INR pair has traded in a familiar trading band between 82.80 and 83.40 since September. According to the daily chart, USD/INR maintains a bullish vibe as the pair holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is reinforced by the 14-day Relative Strength Index (RSI) that stands above the 50.0 midline.

A decisive break above the upper boundary of the trading range at 83.40 will see the next upside barrier near the year-to-date (YTD) high of 83.47, en route to a psychological round mark of 84.00. On the other hand, any follow-through selling below the critical support level of 83.00 round figure will next downside stop near the confluence of the lower limit of the trading range and a low of September 12 at 82.80, followed by a low of August 11 at 82.60.