USD/INR loses traction amid weaker USD, strong Indian equity inflows

• Indian Rupee edges higher, bolstered by the strong equity inflows and a weaker US Dollar.
• Overseas investors bought $5.1 billion in Indian shares in December, the highest month of equity inflows since July.
• Market players will monitor the US Building Permits and Housing Starts on Tuesday.

The Indian Rupee (INR) kicks off the new week on a positive note on Monday. On Friday, the Indian Rupee posted its biggest single-day gain in more than eight months due to a sharp rally in Indian equity markets to fresh record highs. Foreign investors purchased Indian shares worth $5.1 billion in December, marking the strongest month of equity inflows since July.

Although the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) decided to keep interest rates unchanged on December 8, Governor Shaktikanta Das said it does not imply a shift towards a neutral stance as concerns about inflation persist.

On the other hand, the Federal Reserve (Fed) kept the short-term interest rate unchanged last week, signaling that rate hikes are likely over amid falling inflation and a cooling economy. That being said, the anticipation of three rate cuts next year from the Fed has dragged the US Dollar (USD) lower and created a headwind for USD/INR.

Market players will keep an eye on the US housing data on Tuesday, including Building Permits and Housing Starts. The highlight this week will be the Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred inflation gauge, due on Friday.

Daily Digest Market Movers: Indian Rupee remains strong amid the multiple headwinds

• India's foreign exchange reserves rose by $2.816 billion to a four-month high of $606.859 billion in the week ending December 8, according to the Reserve Bank of India (RBI).
• India’s Nifty 50 index has reached a new high, rising 16% in 2023, according to CNBC. India's stock market is currently the seventh largest in the world, with a market capitalization of US$3.989 trillion.
• WPI inflation in India climbed by 0.26% YoY in November, up from a 0.52% drop in the previous reading, above the estimate of 0.08%.
• The Consumer Price Index (CPI) in India rose 5.55% YoY in November, compared to 4.87% previously, falling short of the 5.70% expected.
• The Asian Development Bank (ADB) raised its prediction for India's GDP to 6.7% growth in Fiscal Year 2023-24 from 6.3% in September.
• The US S&P Global Composite PMI grew at its fastest pace in five months in December, climbing to 51.0 from 50.7 in the previous reading.
• The US S&P Global Manufacturing PMI dropped to its lowest level in four months in December, falling from 49.4 to 48.2 in December. The Services PMI jumped from 50.8 in November to 51.3 in December.

Technical Analysis: The Indian Rupee is to remain range-bound around 82.80–83.40

Indian Rupee trades firmer on the day. The USD/INR pair has remained stuck in a familiar trading range of 82.80–83.40 since September. However, USD/INR has resumed its downside journey as the pair holds below the key 100-day Exponential Moving Average (EMA) on the daily chart. The downward momentum is supported by the 14-day Relative Strength Index (RSI) that stands below the 50.0 midline, indicating that the path of its least resistance is to the downside.

A decisive break below the critical support level of 83.00 will see a drop to the confluence of the lower limit of the trading range and a low of September 12 at 82.80. The next contention level to watch is a low of August 11 at 82.60. On the upside, the immediate upside barrier is seen near the upper boundary of the trading range at 83.40. Any follow-through buying above 83.40 will pave the way to the year-to-date (YTD) high of 83.47, followed by the psychological round figure of 84.00.