USD/INR edges lower ahead of US Michigan sentiment data

• Indian Rupee holds positive ground on the modest decline in the USD.
• RBI’s Das said that it’s too early to talk about rate cuts until the 4% inflation target is achieved on a sustained basis.
• Investors will monitor the preliminary US Michigan Consumer Sentiment Index for January for fresh impetus.

Indian Rupee (INR) gains traction on Friday amid a modest decline in the US Dollar (USD). However, the INR’s upside might be capped due to the rise in US Treasury bond yields after the upbeat US economic data. Furthermore, the rebound in oil prices amid the geopolitical tension in the Red Sea might also weigh on the Indian Rupee as the country is the third largest consumer of crude oil in the world.

Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday in Davos that it would be premature to talk about cuts in the key policy rate until the inflation target is achieved on a durable basis. When asked whether a rate cut was possible in the second half of 2024, RBI’s Das said that average inflation is estimated to reach 4.5% in fiscal years 2024–25 and it would depend on many factors. He further stated that the central bank’s focus is to remain actively disinflationary and lower CPI inflation to 4% on a sustained basis.

Later on Friday, the preliminary US Michigan Consumer Sentiment Index and Existing Home Sales will be due. FOMC members M. Daly (San Francisco) and M. Barr (Board of Governors) are scheduled to deliver speeches. The stronger-than-expected US economic data, along with Fed officials pushing back on rate expectations, could exert some selling pressure on the Indian Rupee.

Daily Digest Market Movers: Indian Rupee seems vulnerable amid multiple headwinds

• India is estimated to grow by at least 7% in 2024–25, higher than what the RBI forecast in December, according to the Reserve Bank of India's (RBI) January bulletin.
• The RBI's Bulletin highlights the shift from consumption to investment as a key factor driving India's economic growth.
• Das said that Consumer Price Index (CPI) inflation has decreased from a peak of 7.8% amid the Ukraine-Russia conflict to within the RBI's target range of 2–6%.
• The US weekly Initial Jobless Claims fell to 187K for the week ended January 13 from the previous reading of 203K, stronger than the market expectation of 207K.
• The total for continuing claims hit 1.806 million, better than the 1.845 million expected.
• The Philadelphia Fed Manufacturing Survey improved to -10.6 in January from -12.8 in December.
• Atlanta Federal Reserve (Fed) President Raphael Bostic anticipates that policymakers will start cutting interest rates in the third quarter of this year, as inflation is approaching the central bank’s target.
• The Fed Funds futures market is pricing in 57% odds of the first rate cuts as early as March, according to the CME FedWatch tool.

Technical Analysis: Indian Rupee keeps trading range-bound between 82.80 and 83.40

Indian Rupee trades firmly on the day. The USD/INR pair remains traded in a familiar multi-month-old trading band between 82.80 and 83.40. USD/INR holds above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, indicating directionless in the near term.

The first upside barrier will emerge near the upper boundary of the trading range at 83.40. Any follow-through buying will pave the way to a 2023 high of 83.47, followed by the 84.00 round figure. On the flip side, the initial support level is seen at the 83.00 psychological mark. A decisive break below 83.00 will expose 82.80 (the lower limit of the trading range, low of January 15), and finally at 82.60 (low of August 11).