In recent trading sessions, the Indian Rupee (INR) has exhibited a subdued performance, influenced by both domestic inflation considerations and global economic factors. Reserve Bank of India (RBI) Governor Shaktikanta Das, in a statement last week, asserted that any premature reduction in the key policy rate would be unwarranted until a durable achievement of the 4% inflation target.
Despite the Indian Consumer Price Index (CPI) inflation retreating from its peak during the Ukraine-Russia conflict to within the RBI’s target range of 2–6%, emerging geopolitical tensions and the impact of climate change on food prices are adding uncertainty to the economic landscape.
Investors are closely monitoring the upcoming US Purchasing Managers’ Index (PMI) report, scheduled for Wednesday. Forecasts indicate a potential easing in the preliminary US S&P Global Services PMI for January from 51.4 to 51.0, while the Manufacturing PMI is expected to remain steady at 47.9. Attention will then shift to the Q4 US Gross Domestic Product Annualized on Thursday and the December Core Personal Consumption Expenditures Price Index (Core PCE) on Friday. It’s noteworthy that Indian markets will observe a closure on Friday in observance of Republic Day.
Key Market Developments:
According to the RBI, India’s foreign currency reserves witnessed an uptick by USD 1.634 billion to reach USD 618.937 billion in the week ending January 12.
Foreign Direct Investment (FDI) in India has exhibited a notable surge, rising from $36 billion in 2014 to a substantial $70.9 billion in 2023.
Market sentiments have adjusted, with a decline in the odds for a rate cut at the March meeting, dropping from 70% a week ago to the current 42%, as per the CME FedWatch Tool.
San Francisco Fed President Mary Daly has emphasized that there is substantial work ahead to bring inflation back to the 2% target, dismissing premature speculation about imminent interest-rate cuts.
The Indian Rupee remains range-bound, trading weaker against the US Dollar (USD) within the confines of 82.80–83.40. The USD/INR pair holds above the crucial 100-period Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) below the 50.0 midline suggests a vulnerability in the current bullish outlook, hinting at the possibility of further decline.
In this scenario, the upper boundary at 83.40 poses a critical resistance level for USD/INR, with additional upside resistance noted at the 2023 high of 83.47 and the psychological threshold of 84.00. Conversely, initial support is identified at the psychological level of 83.00. Further downward movement beneath 83.00 could expose the lower limit of the trading range at 82.80, followed by 82.60, representing the low recorded on August 11.
As the Indian Rupee navigates these technical and fundamental dynamics, market participants remain vigilant for potential shifts in the ongoing trend, particularly in response to domestic economic indicators and global market developments.