USD/INR trades firmly in the green, eyes on US PPI data

• Indian Rupee trades on a softer note amid a firmer US Dollar and a stronger US inflation report.
• Reserve Bank of India (RBI) Governor Das emphasized that the Indian banking system is well-placed to support India’s growth outlook.
• Market players will focus on the US Producer Price Index (PPI) and the Indian Consumer Price Index (CPI) on Friday.

Indian Rupee (INR) weakens on the renewed US dollar (USD) demand on Friday. The upbeat US inflation data on Thursday has boosted the Greenback as investors now see the Federal Reserve (Fed) potentially delaying its first interest rate cut.

India’s Prime Minister Narendra Modi said on Wednesday that India is set to become one of the top three global economies, while Reserve Bank of India (RBI) Governor Shaktikanta Das has emphasized that the Indian banking system is well-placed to support India’s growth story as all key indicators of scheduled commercial banks (SCBs) have shown improvement in the last four years.

Investors will closely monitor the US Producer Price Index (PPI) for December, due later on Friday. The PPI figure is estimated to show an increase of 1.3% YoY. Additionally, Fed’s Neel Kashkari is set to speak. On the Indian docket, the December CPI, Industrial Production, and Manufacturing Output will be released.

Daily Digest Market Movers: Indian Rupee loses traction amid strong US inflation data and uncertainties

• India's outward Foreign Direct Investment (FDI) commitments declined sharply to $2.25 billion in December 2023 from $4.0 billion in November 2023, according to Reserve Bank of India (RBI) data.
• India’s Finance Minister Nirmala Sitharaman will unveil the 2024/25 budget on February 1.
• The World Bank maintained its FY25 economic growth forecast for India at 6.4%, attributing it to robust private-sector credit growth, rising public infrastructure spending, and solid domestic demand.
• Finance Minister Nirmala Sitharaman projected that India's economy would reach $5 trillion by 2027–28, making it the third largest in the world.
• US Consumer Price Index (CPI) came in better than expected in December, rising 3.4% YoY from the 3.1% increase seen the month prior. On a monthly basis, the headline CPI grew 0.3% MoM from 0.1% in the previous reading, above the market consensus of 0.2%.
• The Core CPI figure, which excludes volatile food and energy prices, grew 0.3% MoM while the annual rate climbed 3.9% YoY in December versus 4.0% prior, above the market consensus of 3.8%.
• The upbeat US CPI inflation data prompted investors to question that the Federal Reserve (Fed) might delay cutting interest rates in the second quarter.
• Chicago Fed President Austan Goolsbee said 2023 was a "hall-of-fame" year for falling inflation, setting the path for a couple of interest rate cuts in the United States in 2024 if the trend continued.

Technical Analysis: Indian Rupee remains bearish in the shorter term

Indian Rupee trades weaker on the day. The USD/INR pair has traded within a familiar trading range of 82.80-83.40 since September 2023. From the technical perspective, USD/INR maintains a bearish tone as the pair holds below the key 100-period Exponential Moving Average (EMA). Furthermore, the 14-day Relative Strength Index (RSI) is below the 50.0 midpoint, indicating a further decline cannot be ruled out.

A decisive break below the 83.00 psychological level will pave the way to the critical support level of 82.80. The mentioned level is the confluence of the lower limit of the trading range and a low of September 12. Any follow-through selling will see the next contention level near a low of August 11 at 82.60. On the upside, the upper boundary of the trading range at 83.40 will be a tough nut to crack for USD/INR. If the upside breakout of 83.40 is confirmed, the next upside barrier is seen at a 2023 high of 83.47, en route to the psychological figure at 84.00.