USD/INR drifts higher, focus on Indian PMI, FOMC Minutes

• Indian Rupee weakens on the firmer US Dollar.
• The positive outlook of the Indian economy has boosted the market capitalization of Indian equities to rank fifth globally.
• Indian S&P Global Manufacturing PMI, US final ISM Manufacturing PMI, and FOMC Minutes will be due on Wednesday.

Indian Rupee (INR) edges lower on Wednesday amid renewed US Dollar (USD) demand. The optimistic outlook in the Indian economy by domestic and overseas investors has boosted the market capitalization of Indian equities to become the fifth largest in the world, just behind Hong Kong.

The Nifty experienced a rise of 20% in 2023, with over half of the gain occurring in the last two months. This was supported by faster-than-expected quarterly growth, rising bets on Federal Reserve (Fed) rate cuts in the first half of 2024, and steady retail participation.

The Indian S&P Global Manufacturing PMI is due later on Wednesday and is estimated to ease from 56.0 in November to 55.9 in December. Nonetheless, the INR is likely to take more cues this week from moves in the US Dollar. Market players will keep an eye on the US final ISM Manufacturing PMI report and FOMC Minutes on Wednesday. On Friday, the US Nonfarm Payrolls report will be the highlight this week.

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

• A pickup in foreign inflows into Indian markets has also boosted the Indian Rupee, but the upside is capped as the RBI likely intervened in the previous two weeks to absorb the inflows, according to traders.
• The RBI has consistently intervened in foreign currency markets on both sides in recent weeks, maintaining the USD/INR pair in a limited trading range, according to traders.
• Indian share of global market capitalization hit a record 3.8% in the last week of 2023, according to Bloomberg data.
• The US final Manufacturing PMI came in at 47.9 in December from 48.2 in November, weaker than expected.
• As per the CME FedWatch tool, the markets anticipate no hike at its upcoming January meeting and have priced in 78% odds of a rate cut in the March meeting.

Technical Analysis: Indian Rupee clings to the longer-term range theme

Indian Rupee trades softer on the day. The USD/INR pair continues to move in a multi-month-old trading band of 82.80–83.40. Technically, the path of least resistance of USD/INR is to the upside as the pair holds above the key 100-period Exponential Moving Average (EMA) on the daily chart. The upward momentum is supported by the 14-day Relative Strength Index (RSI) which stands above the 50.0 midpoint.

The upper boundary of the trading range at 83.40 acts as the first upside barrier for USD/INR. Any follow-through buying above 83.40 will see a rally to the 2023 high of 83.47, en route to the 84.00 psychological figure. On the flip side, the initial contention level will emerge at 83.00. Further south, the downside target will emerge at the confluence of the lower limit of the trading range and a low of September 12 at 82.80. A breach of this level will see a drop to a low of August 11 at 82.60.