The Indian Rupee (INR) displayed strength on Monday, trading on a positive note against the backdrop of a weakening US dollar (USD). The mixed labor market data in the United States for February, released on Friday, exerted downward pressure on the Greenback, triggering speculation about a potential rate cut in June.
Market analysts anticipate a slight easing of the Indian Consumer Price Index (CPI) inflation for February, projecting a decline from 5.10% in January to 5.02%. Despite this moderation, concerns persist about upward risks to food inflation, potentially keeping the Reserve Bank of India (RBI) cautious and maintaining a status quo on interest rates. Such a stance could bolster the Indian Rupee, acting as a headwind for the USD/INR pair.
Investor attention is focused on upcoming economic indicators, with India’s CPI inflation and Industrial Production data set for release on Tuesday. Wednesday will see scrutiny of the Wholesale Price Index (WPI) for Food, Fuel, and Inflation. In the United States, the February Consumer Price Index (CPI) and Retail Sales data will be unveiled on Tuesday and Thursday, respectively.
Indian Rupee Remains Strong Amid High Inflation, Geopolitical Risks
The INR has demonstrated resilience, climbing 0.5% year-to-date, positioning itself as Asia’s top-performing currency in 2024. Foreign investors continue to show interest in local bonds ahead of India’s anticipated entry into global debt indexes.
Traders will closely monitor the maturity of the Reserve Bank of India’s $5 billion USD/INR sell-buy swap on Monday. The outcome may impact the overnight USD/INR swap rate and forward premiums.
In the US, the Nonfarm Payrolls for February surpassed expectations, rising to 275K from January’s 229K. However, the Unemployment Rate increased to 3.9%, marking its highest level in two years. Average Hourly Earnings growth was reported at 4.3% YoY in February, slightly below the market consensus of 4.4%. Federal Reserve Chair Powell, in his semiannual testimony last week, expressed the need for increased confidence before considering a rate cut, signaling a cautious approach.
Technical Analysis: Indian Rupee Remains Capped within a Longer-Term Band of 82.60-83.15
The Indian Rupee continues to trade robustly, with USD/INR constrained within a descending trend channel since December 8, 2023, spanning 82.60-83.15.
In the short term, a bearish outlook persists as the pair remains below the 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) in bearish territory below the 50.0 midline suggests potential further decline.
Key support lies near the lower limit of the descending trend channel at 82.60. A breach could invite additional bearish momentum, targeting lows of August 23 at 82.45 and June 1 at 82.25.
To the upside, the confluence of the 100-day EMA and the psychological round figure of 83.00 presents an immediate resistance level. Beyond this, a move towards the upper boundary of the descending trend channel at 83.15 may unfold. A breakout above 83.15 could pave the way for a rally towards a high of January 2 at 83.35, with potential further upside to 84.00.
