USD/INR gains upward traction, all eyes on Fed rate decision

• Indian Rupee edges lower on the firmer US Dollar ahead of a key US event.
• The Federal Reserve is widely expected to keep the benchmark overnight rate steady in the 5.25%–5.50% range.
• Investors await the FOMC interest rate decision and press conference ahead of the Indian Interim Budget 2024. 

Indian Rupee (INR) trades on a softer note on Wednesday. The recovery of the pair is bolstered by safe-haven flow as traders prefer to wait on the sidelines ahead of the Federal Reserve's Open Market Committee's (FOMC) interest rate decision.

India has attracted attention with its standout growth trajectory. Indian Chief Economic Adviser, V Anantha Nageswaran, stated that India can aspire to become a $7 trillion economy by 2030. However, the risk of sticky inflation and higher oil prices amid the Middle East geopolitical tension might impact the Indian economy.  

The Federal Reserve is widely anticipated to leave benchmark interest rates unchanged at a 23-year high of 5.25–5.5% at its January meeting. The prospects that the first Fed rate cut will happen at the March meeting have faded as the economy continues to show surprising strength. According to the CME FedWatch Tool, the markets have priced in 85% odds of a rate cut at the May meeting. 

Later on Wednesday, FOMC is set to announce its rate decision at 19.00 GMT and Chairman Jerome Powell will hold a press conference at 19.30 GMT. Powell’s speech could provide information on the central bank's outlook and offer some hints about the timeline of rate cuts in 2024. Apart from this, India’s S&P Global Manufacturing PMI for January will be due on Thursday. All eyes will be on the Indian Interim Budget 2024 for fiscal year 2024–25. 

Daily Digest Market Movers: Indian Rupee remains resilient amid global challenges

• India's foreign exchange reserves dropped $2.79 billion to $616.14 billion for the week ending on January 19, according to the Reserve Bank of India (RBI). 
• India's finance minister will present the federal budget for 2024–25 on Thursday, with expectations that the government will lower its fiscal deficit by at least 50 basis points (bps).
• The Indian Rupee became the best-performing currency in Asian markets in January 2024, rising by 1% to 2%.
• The National Statistical Office (NSO) forecasted an Indian growth rate of 7.3% for FY24, compared to 7.2% for FY23. 
• The number of job openings in the US rose to 9.026 million in December, above the November figure, which was revised up to 8.925 million.
• The Conference Board Consumer Confidence surged to a two-year high in January, arriving at 114.8 in January versus 108.0 prior.

Technical Analysis: Indian Rupee extends the range-bound theme between 82.78 and 83.45

Indian Rupee weakens on the day. The USD/INR pair consolidates within a two-month-old descending trend channel of 82.78–83.45. USD/INR remains well-supported above the key 100-period Exponential Moving Average (EMA) on the daily chart. However, the bullish outlook of the pair looks vulnerable as the 14-day Relative Strength Index (RSI) hovers around the 50.0 midlines, suggesting the non-directional movement of the pair.

The first resistance level for the pair will emerge at the upper boundary of the descending trend channel at 83.25. A sustained break above the 83.25 level could pave the way to the next bullish targets all the way up to a high of January 2 at 83.35, en route to a 2023 high of 83.47. On the other hand, a bearish breakout below the confluence of the 100-period EMA and a psychological level at the 83.00–83.05 region would signal the bearish momentum back to a low of December 18 at 82.90, followed by the lower limit of the descending trend channel at 82.72.