USD/INR recovery loses steam, eyes on Indian, US CPI data

The Indian Rupee (INR) edges higher on Monday on the softer USD. 
The RBI is likely to maintain its monetary policy stance as the upside risks to food inflation remain. 
Market players will closely watch the Indian and US CPI inflation data for February, due on Tuesday. 

The Indian Rupee (INR) trades on a stronger note on Monday amid the decline of the US dollar (USD). The mixed US February labor market data on Friday has exerted some selling pressure on the Greenback as it has triggered the possibility of a rate cut in June. 

The markets estimate the Indian Consumer Price Index (CPI) inflation for February to ease to 5.02% from 5.10% in January. Analysts believe that the upside risks to food inflation remain, and it should keep the RBI on the sidelines for longer with no urgency to cut rates. This, in turn, might boost the Indian Rupee and act as a headwind for the USD/INR pair. 

Investors will keep an eye on India’s CPI inflation and Industrial Production on Tuesday. On Wednesday, the attention will shift to the Wholesale Price Index (WPI) of Food, Fuel and Inflation. On the US docket, the February CPI and Retail Sales will be released on Tuesday and Thursday, respectively.

Daily Digest Market Movers: Indian Rupee remains strong amid high inflation, geopolitical risks

The INR has climbed 0.5% this year, making it Asia’s top-performing currency in 2024, as foreign investors continued to purchase local bonds ahead of the country’s entry into global debt indexes. 
Traders will monitor the maturity of the Reserve Bank of India’s $5 billion USD/INR sell-buy swap on Monday, which might impact the overnight USD/INR swap rate and forward premiums.
The US Nonfarm Payrolls rose by 275K in February from 229K in January, stronger than the market expectation of 200K, according to the US Bureau of Labor Statistics (BLS) on Friday.
The Unemployment Rate in the US rose to 3.9% in February from 3.7% in January, the highest level in two years.
The US wage growth, as measured by the Average Hourly Earnings, rose by 4.3% YoY in February versus 4.4% prior, below the market consensus of 4.4%.  
Fed Chair Powell said last week during his semiannual testimony that more confidence is needed before the central bank is ready to lower the rate, but they’re not far from it.

Most recent article: Sensex kicks off Monday on a bearish note amid weak global moves

Technical Analysis: Indian Rupee remains capped within a longer range of 82.60-83.15

Indian Rupee trades strongly on the day. USD/INR remains confined within a multi-month-old descending trend channel since December 8, 2023 around 82.60-83.15. 

In the near term, the bearish outlook of USD/INR remains intact as the pair is the 100-day Exponential Moving Average (EMA) on the daily chart. Additionally, the 14-day Relative Strength Index (RSI) lies in bearish territory below the 50.0 midlines, indicating that further decline looks favorable. 

The potential support level will emerge near the lower limit of the descending trend channel at 82.60. A breach of this level could draw in more bears and put a move back to a low of August 23 at 82.45 and finally a low of June 1 at 82.25.

On the bright side, the confluence of the 100-day EMA and a psychological round figure of 83.00 act as an immediate resistance level. Further north, the pair could open up a move to the upper boundary of the descending trend channel at 83.15. An upside breakout above 83.15 will see a rally to a high of January 2 at 83.35, en route to 84.00. 

US Dollar price in the last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies in the last 7 days. US Dollar was the weakest against the .

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
-0.90%
-1.52%
-0.49%
-1.30%
-2.17%
-1.17%
-0.65%

EUR
0.91%
 
-0.60%
0.42%
-0.38%
-1.25%
-0.26%
0.27%

GBP
1.50%
0.62%
 
1.00%
0.23%
-0.63%
0.34%
0.87%

CAD
0.50%
-0.39%
-1.01%
 
-0.78%
-1.67%
-0.67%
-0.14%

AUD
1.28%
0.39%
-0.23%
0.78%
 
-0.86%
0.12%
0.64%

JPY
2.13%
1.24%
0.60%
1.62%
0.85%
 
0.96%
1.49%

NZD
1.16%
0.27%
-0.34%
0.66%
-0.12%
-0.99%
 
0.53%

CHF
0.63%
-0.26%
-0.87%
0.14%
-0.64%
-1.51%
-0.53%
 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

RBI FAQs

The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.

The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.

Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.

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