USD/INR posts modest gains, investors await FOMC and RBI Meeting Minutes

• Indian Rupee trades on a weaker note amid the rebound of USD.
• The RBI is anticipated to wait for the US Fed to take action before adjusting its monetary policy.
• The FOMC and RBI Meeting Minutes will be in the spotlight this week. 

Indian Rupee (INR) weakens on Tuesday on the stronger US Dollar (USD). The INR is expected to trade with a modest positive bias, supported by carry trades and the speculation that the Reserve Bank of India (RBI) will ease monetary policy more slowly than the Fed. However, a continuation of debt-related dollar inflows, higher crude oil, and rising US bond yields might cap the upside of the pair in the near term. 

Goldman Sachs expects two rate cuts in India in the second half of the year. If the economy is worse than forecast, the RBI may be forced to cut interest rates more quickly and deeply.

Traders will monitor the minutes of the Federal Open Market Committee's (FOMC) and RBI's latest monetary policy meetings, due later on Wednesday and Thursday, respectively. 

Daily Digest Market Movers: Indian Rupee weakens in the face of multiple challenges and uncertainties

• Foreign investors purchased about $2 billion in Indian bonds in February, after purchases of $2.3 billion the previous month.
• Goldman Sachs economists said India’s economic growth may exceed 6% for the rest of the decade, driving more investments from China into the South Asian country.
• Minister of Commerce and Industry, Piyush Goyal, said the government’s ambition is to expand the current $3.7 trillion Indian economy to a $30–35 trillion fully developed economy by 2047.
• The US Producer Price Index (PPI) for January increased by 0.3% MoM from a 0.1% decline in December. The PPI figure rose 0.9% in a year, beating market expectations.
• The stronger-than-expected inflation data has prompted Fed policymakers to ramp up their cautious stance on interest rate cuts this year.
• The markets expect the first 25 basis points (bps) rate cut in 2024 as early as June, according to the CME FedWatch Tools. 

Technical Analysis: Indian Rupee softens in a longer-term trading range

Indian Rupee trades softer on the day. USD/INR remains stuck within a multi-month-old descending trend channel between 82.70 and 83.20 since December 8, 2023. 

In the short term, the pair trades sideways with indecisive action. It’s worth noting that the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, suggesting a flattening momentum for the pair. 

A break above the upper band of the Bollinger Band at 83.15 could see a rally to the upper boundary of the descending trend channel at 83.20. Any follow-through buying above 83.20 will expose a high of January 2 at 83.35, en route to the 84.00 psychological level. 

On the other hand, a move below the lower band of Bollinger Band at 82.90 could set off a test of the lower limit of the descending trend channel at 82.70, followed by a low of August 23 at 82.45.