USD/INR posts modest gains, investors await US GDP data

• Indian Rupee trades on a softer note on the renewed USD demand. 
• India is expected to achieve real GDP growth of at least 6–6.5% in the long term, according to a Deutsche Bank report. 
• The US Gross Domestic Product (GDP) for the fourth quarter (Q4) will be released later on Wednesday. 

Indian Rupee (INR) edges lower on Wednesday amid the modest recovery of the US Dollar (USD). The pair is likely to remain in a tight range due to USD inflows from importers and the potential intervention by the Reserve Bank of India (RBI). 

According to the Deutsche Bank report, the Indian economy has shown remarkable resilience, with growth momentum holding up significantly better than expected despite the Russia-Ukraine war last year. Furthermore, India is anticipated to achieve real GDP growth of at least 6–6.5% over the long term. This is considerably higher than in similar developing nations. Investors will take more cues from the Indian GDP annual growth numbers on Thursday, followed by the S&P Global Manufacturing PMI for February on Friday. If the reports show stronger-than-expected results, this might boost the INR and act as a headwind for the USD/INR pair. 

Investors will monitor the US Gross Domestic Product (GDP) for the fourth quarter (Q4), due on Wednesday, along with preliminary Goods Trade Balance, Fed’s Bostic, Collins, and Williams speeches. The attention will shift to the Core Personal Consumption Expenditures Price Index (PCE), the Fed's preferred inflation gauge, due on Thursday.

Daily Digest Market Movers: Indian Rupee remains vulnerable to geopolitical risks

• India’s real GDP growth for the December quarter is forecast to grow 7% year-on-year, higher than previously anticipated, according to Deutsche Bank. 
• Indian Rupee is likely to have additional support this week from MSCI-rebalancing inflows, which are estimated to drive passive inflows of $1.2 billion into Indian equities, according to Nuvama Alternative & Quantitative Research.
• Foreign investors have net purchased over $2.4 billion of Indian bonds in February so far.
• Fed Governor Bowman said inflation will continue to decline with interest rates held at current levels, but it is not yet time to start lowering rates.
• Kansas City Fed President Schmid stated that there is no need to preemptively adjust the stance of monetary policy as inflation is running above target, labor markets are tight, and demand is showing considerable momentum.

Technical Analysis: Indian Rupee oscillates in a longer-term trading band of 82.70–83.20

Indian Rupee trades weaker on the day. USD/INR remains confined within a multi-month-old descending trend channel of 82.70–83.20 since December 8, 2023. 

In the near term, the negative outlook of USD/INR remains intact as the pair is below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. Additionally, the 14-day Relative Strength Index (RSI) lies in bearish territory below the 50.0 midline, indicating that a further decline looks favorable. 

In the case of a bearish environment, the lower limit of the descending trend channel at 82.70 acts as an initial support level for USD/INR. A breach of this level could put a move to a low of August 23 at 82.45 on the table, followed by a low of June 1 at 82.25.

On the upside, the crucial resistance level for the pair is seen at the confluence of a psychological round mark and the 100-day EMA at 83.00. A break above the mentioned level could attract bullish momentum that may take the pair to the upper boundary of the descending trend channel at 83.20, en route to a high of January 2 at 83.35, and finally at 84.00.