USD/INR rebounds ahead of Indian, US CPI data

• The Indian Rupee edges lower on Tuesday despite the weaker USD.
• RBI is anticipated to maintain its policy in April as the Indian economy remains strong and inflation remains above its 4% target.
• The Indian and US February CPI inflation data will be in the spotlight on Tuesday.

The Indian Rupee (INR) trades on a weaker note on Tuesday, despite the decline of the US dollar (USD). The softer Greenback and a decline in crude oil prices might boost the Indian Rupee in the near term. INR reached an over six-month intraday high of 82.65 on Monday, but the rally was limited by a possible invention from the Reserve Bank of India (RBI) to prevent a significant appreciation in the INR.

India's headline retail inflation is expected to drop to 5.02% in February from 5.10% in January, extending it within the RBI's tolerance range of 2-6% for the sixth consecutive month. However, economists expect the Indian central bank to maintain current monetary policy at its April meeting since the domestic economy remains strong and inflation continues to stay above its 4% target.

Looking ahead, investors will monitor India’s and US Consumer Price Index (CPI) inflation data for February, due on Tuesday. Later this week, India’s Wholesale Price Index (WPI) of Food, Fuel, and Inflation will be released on Wednesday, and the US Retail Sales will be published on Thursday.

Daily Digest Market Movers: Indian Rupee remains vulnerable to high inflation, geopolitical risk

• India's foreign reserves increased by $6.55 billion to $625.626 billion in the week ended March 1, according to the RBI.
• Indian Commerce and Industry Minister Piyush Goyal said many developed and developing countries have shown interest in trading in the Indian currency with India to cut transaction costs as the INR gains traction
• The Indian economy will transition to an upper middle-income country by FY36, reaching the $15 trillion mark by FY47, according to India Ratings and Research (Ind-Ra).
• Fed Chair Jerome Powell said the US economy is healthy, and policymakers are not far from having enough confidence in inflation's downward trajectory to begin cutting rates.
• Futures markets have priced in about a 70% chance the Fed will start cutting interest rates by mid-June and expect a full percentage point of rate cuts by the end of the year, according to the CME FedWatch Tools.
• The headline CPI figure is expected to remain steady at 3.1% YoY in February, while the Core CPI figure is estimated to ease to 3.7% YoY in February.

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Technical Analysis: Indian Rupee remains confined within a longer-term band of 82.60–83.15

Indian Rupee trades softer on the day. USD/INR remains stuck within a multi-month-old descending trend channel since December 8, 2023 around 82.60–83.15.

In the near term, USD/INR maintains the negative outlook unchanged as the pair is below the 100-day Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI), which lies below the 50.0 midlines, is contributing to bolstering the downward momentum.

The critical support level is located at the lower limit of the descending trend channel at 82.60. A break below this level could drag the pair lower to a low of August 23 at 82.45 and then revisit a low of June 1 at 82.25.

On the other hand, the first upside barrier will emerge at the 83.00 mark, portraying the confluence of the 100-day EMA and a psychological round mark. The additional upside filter to watch is the upper boundary of the descending trend channel at 83.15. A bullish breakout above the mentioned level might attract bulls and the pair might recover to a high of January 2 at 83.35, followed by an 84.00 round figure.