USD/INR extends its down leg, RBI keeps repo rates unchanged at 6.5%

• Indian Rupee gains traction despite the stronger US Dollar.
• India’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% and maintained its ‘withdrawal of accommodation’ stance, as widely expected.
• Investors await the speech from Fed’s Barkin on Friday for fresh catalysts.

Indian Rupee (INR) extends its upside on Friday despite renewed US Dollar (USD) demand and higher US bond yields. The uptick of the INR is supported by the Dollar sales from local private banks but it pared gains after a dip in buying demand. The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate at 6.5% for the sixth consecutive time on Thursday.

During the press conference, India’s MPC acknowledged progress on inflation as CPI has started easing. Nonetheless, the ongoing geopolitical tensions in the Middle East, intermittent spikes led by food price volatility, and global interest rate uncertainty were cited as risks to inflation. The markets anticipate the first rate cut by the RBI at the June meeting after the new government is formed.

Investors have reduced their bets on Fed rate cuts in March due to hawkish remarks from Fed officials and strong US economic data. Dallas Fed L. Logan is set to speak later on Friday. In the absence of top-tier economic data from the US, risk sentiment will likely play a crucial role in the USD/INR pair.

India’s inflation data and Industrial Production will be due next week. The minutes of the MPC meeting will be released on February 22. Investors will monitor the developments surrounding India’s inflation trajectory.

Daily Digest Market Movers: Indian Rupee strengthens amid global and inflation risks

• The decision was not unanimous this time, with the MPC deciding in favor of an unchanged rate by a 5:1 majority. Professor Varma voted in favor of a 25 basis points (bps) cut in this meeting.
• The Reserve Bank of India (RBI) revised GDP growth forecast for FY25 to 7% from 6.5% previously.
• The Reserve Bank of India (RBI) has maintained its inflation projection at 5.4% for 2023–2024 and 4.5% for 2024–25.
• CPI inflation is projected to be 4.5% for the fiscal year 2024–2025, with Q1 at 5%, Q2 at 4%, Q3 at 4.6%, and Q4 at 4.7%.
• The US weekly Initial Jobless Claims fell to 218K for the week ended February 3 from the previous week of 227K, better than the estimation of 220K. Continuing Claims decreased by 23K to 1.891M in the week ended January 27.
• Fed Richmond President Thomas Barkin reiterated policymakers have time to be patient about the timing of rate cuts due to a solid labor market and ongoing disinflation.

Technical Analysis: Indian Rupee ticks up in the 82.70–83.20 long-term trading range

Indian Rupee trades strongly on the day. USD/INR remains stuck within a descending trend channel of 82.70–83.20 since December 8, 2023.

In the near term, the pair is below the key 100-period Exponential Moving Average (EMA) in the daily timeframe and the 14-day Relative Strength Index (RSI) lies below the 50.0 midline. This indicates that the pair maintains its bearish bias and the further decline cannot be ruled out.

In case of a bearish trading environment, a low of February 2 at 82.83 will be the first downside target for USD/INR. The potential support level for the pair will emerge at the lower limit of the descending trend channel at 82.70. A breach of this level could draw in enough sellers to send USD/INR back to a low of August 23 at 82.45, followed by a low of June 1 at 82.25.

The key resistance level is seen in the 83.00–83.05 region, portraying the upper boundary of the descending trend channel, the psychological round figure, and the 100-period EMA. Sustained gains above this level could spur a rally to a high of January 18 at 83.20. Further north, the next hurdle is located at a high of January 2 at 83.35, en route to the 84.00 psychological level.