USD/INR trades firmer, RBI remains on high alert on inflation

• Indian Rupee loses ground on the renewed USD demand.
• The Ministry of Finance stated that they remain on high alert over inflationary risks.
• Market players await the US Jobless Claims Durable Goods Orders and UoM Consumer Sentiment survey.

Indian Rupee (INR) trades softer on Wednesday amid renewed US dollar (USD) demand. In its latest monthly economic review for October 2023, the Ministry of Finance stated that even as inflationary pressures have moderated, there are persistent downside risks to growth and macroeconomic stability from inflation, which keeps the government and the Reserve Bank of India (RBI) on high alert. Furthermore, the report suggests a decline in crude oil prices and sustained moderation in core inflation could help alleviate inflationary pressures.

The minutes of the Federal Open Market Committee (FOMC) meeting released on Tuesday showed that all participants agreed to proceed carefully and policy decisions at every meeting would continue to be based on the totality of incoming information and economic outlook as well as the balance of risks.

Investors will keep an eye on the US data, including the weekly Jobless Claims Durable Goods Orders, and the University of Michigan Consumer Sentiment survey, due later on Wednesday. In the meantime, the dollar demand from state-run and foreign banks and foreign funds outflows might impact the INR. 

Daily Digest Market Movers: Indian Rupee remains sensitive to multiple headwinds

• India’s Ministry of Finance said in the report that the government and the Reserve Bank of India (RBI) remain on high alert over inflationary risks.
• The finance ministry's report highlights the need to monitor external financial flows closely, acknowledging their direct impact on the Indian Rupee's value and the balance of payments.
• RBI increased its gold holdings by nine tonnes during the September 2023 quarter, bringing its total to 337 tonnes amassed by central banks worldwide.
• According to the RBI's monthly bulletin, the momentum of the change in India's GDP is likely to be higher in the third quarter of 2023-24, with festival demand remaining ebullient.
• RBI estimated the Indian economy to post a GDP growth rate of 6.5% in 2023-24.
• The US Chicago Fed National Activity Index for October fell to -0.49 from the previous reading of -0.02.
• US Existing Home Sales dropped 4.1% MoM in October from a 2.2% decline in September.
• The FOMC minutes showed all participants agreed to “proceed carefully” and policy decisions at every meeting would continue to be based on the totality of incoming information and economic outlook as well as the balance of risks.

Technical Analysis: The Indian Rupee keeps a positive outlook

The Indian Rupee trades weaker on the day. The USD/INR pair has traded within a trading range of 82.80–83.35 since September. The technical outlook suggests that the upleg of USD/INR stays intact as the pair holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. Meanwhile, the 14-day Relative Strength Index (RSI) holds above the 50.0 midline, suggesting the path of least resistance is to the upside.

The immediate resistance level for the pair will emerge at the upper boundary of the trading range of 83.35. Some follow-through buying should pave the way to the year-to-date (YTD) high of 83.47. The next hurdle is located near a psychological round mark at 84.00.

On the flip side, the confluence of the lower limit of the trading range and a low of September 12 at 82.80 acts as an initial support level for the pair. If sellers push prices below that level, the next contention to watch is a low of August 11 at 82.60, followed by a low of August 24 at 82.37.