USD/INR extends its down leg ahead of India’s Interim Budget

• Indian Rupee trades in positive territory for the third consecutive day. 
• Chief Economic Advisor is confident that India is poised for continuous and robust economic expansion.
• Investors will closely watch India’s Interim Budget for 2024–25, followed by US PMI data on Thursday.

Indian Rupee (INR) gains traction on Thursday. The uptick in the pair is bolstered by US Dollar (USD) sales from both local and foreign banks, which boosted the INR to its strongest level in over two weeks.

The Federal Reserve (Fed) left the benchmark Federal Funds Rate unchanged in January. Fed Chair Jerome Powell stated that the upcoming inflation data will determine how soon the central bank moves ahead on rate cuts.

India's Chief Economic Advisor, V Anantha Nageswaran, highlighted in "The Indian Economy: A Review" report that macroeconomic stability will support India's continued robust economic growth. The Reserve Bank of India (RBI) forecast India’s GDP growth of 7.4% in FY24, with a slight decline in headline inflation. Factors contributing to this positive outlook include resilient service exports and reduced oil import costs.

Looking ahead, Finance Minister Nirmala Sitharaman will present India’s Interim Budget 2024–25 on Thursday. On the US docket, the US weekly Initial Jobless Claims and ISM Manufacturing PMI will be due. Another highlight this week will be the US Nonfarm Payrolls (NFP) on Friday.  

Daily Digest Market Movers: Indian Rupee remains strong despite geopolitical tension

• The International Monetary Fund (IMF) has raised its growth forecast for India, expecting the economy to expand by 6.7% in the fiscal year 2024, compared with the 6.3% projected earlier.
• India’s GDP growth is seen steady at 6.5% for FY25 and FY26, a 20 basis points (bps) upgrade from its October 2023 forecast, according to the IMF.  
• India's foreign currency reserves declined $2.79 billion to $616.14 billion in the week ended January 19, according to the Reserve Bank of India (RBI).
• The Indian rupee appreciated by 1% to 2% in January 2024, making it the best-performing currency in Asian markets.
• The Federal Open Market Committee (FOMC) agreed unanimously to keep the benchmark Federal Funds Rate at 5.25–5.50%, as widely expected.
• The FOMC stated that it won't begin lowering the target range until it sees further progress on inflation moving sustainably toward the 2% target.
• Fed Chair Jerome Powell closed the door to the possibility of a rate cut in March, but the markets believe the May FOMC meeting is the most likely for the Fed to start easing policy.  
• The US ADP employment report showed the private sector added 107K jobs in January from the previous reading of 158K, lower than the market consensus of 145K.
• The Employment Cost Index rose 0.9% QoQ in Q4 from the previous quarter's 1.1% QoQ gain, worse than the expectation of 1.0%.

Technical Analysis: Indian Rupee extends the range-bound game

Indian Rupee trades on a stronger note on the day. The USD/INR pair sticks to the range-bound theme within a two-month-old descending trend channel between 82.78 and 83.45. USD/INR resumes a bearish cycle as the pair returns below the key 100-period Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI) stands below the 50.0 midlines, hinting that support is more likely to break than hold. 

In case of a bearish trading environment, the initial support level of the pair will emerge near a low of December 18 at 82.90, followed by the lower limit of the descending trend channel at 82.72. A decisive break below 82.72 might be followed by a sustained selloff to a low of August 23 at 82.45. 

On the upside, the support-turned-resistance level of 83.00 will be the first upside barrier for USD/INR. Further north, the next hurdle is seen at the upper boundary of the descending trend channel at 83.25. A sustained break above this could clear the way for a move 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.