The Indian Rupee (INR) faced downward pressure on Friday due to the modest recovery of the US Dollar (USD). Increased demand for the USD from state-run banks and local importers has limited the INR’s potential gains. Additionally, a rebound in crude oil prices has added selling pressure on the INR, as India ranks as the third-largest consumer of crude oil globally, behind the United States and China.
Conversely, positive trends in the Indian stock market, sustained foreign inflows, and robust macroeconomic growth could bolster the INR. The rising expectations of a US Federal Reserve (Fed) rate cut in September, following softer US inflation data, might also weigh on the USD, potentially capping the upside for the USD/INR pair in the near term.
Market Watch: Key Data Releases
Later on Friday, investors will focus on the Indian Consumer Price Index (CPI) data, expected to show a 4.8% increase in June. Additionally, Industrial Production and Manufacturing Output figures will be released. On the US side, the June Producer Price Index (PPI) and the preliminary July Michigan Consumer Sentiment gauge are set to be published.
Market Movers: Indian Rupee Sensitive to Global Trends
The International Monetary Fund (IMF) estimates that shifting employment into construction, services, and manufacturing could boost India’s GDP growth by 0.2 to 0.5 percentage points. Meanwhile, the US CPI rose 3.0% year-on-year in June, down from 3.3% in May, and below the market consensus of 3.1%. On a monthly basis, the CPI declined by 0.1% in June, marking the lowest level in over three years. The core CPI, which excludes volatile food and energy prices, increased by 3.3% year-on-year in June, also below forecasts and the previous month’s figure of 3.4%. This core CPI was up 0.1% month-on-month.
Federal Reserve Bank of Chicago President Austan Goolsbee described the recent inflation report as “excellent,” indicating that the central bank is on track to meet its 2% target. Similarly, Federal Reserve Bank of San Francisco President Mary Daly acknowledged improving inflation figures, expecting further easing in price pressures and the labor market, which could warrant interest rate cuts. Financial markets now see an 85% chance of a Fed rate cut in September, up from 70% before the CPI report, with two rate cuts anticipated this year.
Technical Analysis: USD/INR Consolidation
The INR traded weaker on Friday, maintaining a bullish outlook as per the daily chart. The USD/INR pair remains above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) remains in bullish territory above the 50-midline, suggesting that EMA support is likely to hold.
In the shorter term, the pair has remained within its month-long range since March 21. Any follow-through buying above the upper boundary of the trading range at 83.65 could lead to a retest of the all-time high of 83.75, with extended gains possibly rallying to the 84.00 psychological barrier.
On the downside, sustained trading below the 100-day EMA at 83.37 could pave the way to the 83.00 mark, with the next target at 82.82, a low seen on January 12.
Conclusion
The INR’s performance remains influenced by a mix of global and domestic factors. While the USD’s recovery and rising crude oil prices exert pressure, positive trends in the Indian stock market and macroeconomic growth provide potential support. Investors are closely watching key economic data releases and the Fed’s policy decisions, which will likely shape the INR’s trajectory in the near term.
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