The Indian Rupee (INR) showcased resilience in trading on Wednesday, maintaining a positive trajectory even in the face of a strengthened US Dollar (USD). Market analysts suggest that the downside risk for the INR may be contained, largely attributed to anticipated interventions by the Reserve Bank of India (RBI) to stabilize the local currency. However, factors such as weakness in Asian counterparts, surging crude oil prices, and cautious market sentiments could exert downward pressure on the INR.
Wednesday marks the release of India’s May Consumer Price Index (CPI) and Industrial Production data, coinciding with the unveiling of the US Consumer Price Index (CPI) figures ahead of the Federal Reserve’s (Fed) monetary policy meeting. The Fed is widely anticipated to maintain its policy rates unchanged during the June meeting. Attention will be keenly focused on the messaging from Fed Chair Jerome Powell during the subsequent press conference, as investors seek insights into potential adjustments to the interest rate trajectory. A hawkish stance from Powell could bolster the USD and offer support to the USD/INR pair.
Amidst these developments, the one-month implied volatility of the USD/INR pair has declined to 2.20%, down from its six-month peak of 3.35% recorded in May. A foreign exchange trader at a private bank noted, “Don’t think there’s a lot of fresh positioning (on USD/INR) currently as people are mostly waiting for Fed and US (inflation) data.”
Projections indicate that India’s CPI inflation is expected to edge up to 4.90% Year-on-Year (YoY) in May from 4.83% in April. Meanwhile, the World Bank, in its June Global Economic Prospects report, affirmed India’s position as the fastest-growing among the world’s largest economies, forecasting a steady average annual growth of 6.7% between FY25 and FY27.
On the US front, the headline CPI figure for May is anticipated to show a 3.4% YoY increase, while the core CPI is projected to rise by 3.5% YoY. Interest rate futures are currently pricing in approximately 38 basis points (bps) of rate cuts over 2024, down from nearly 50 bps recorded last week.
From a technical standpoint, the positive momentum of the USD/INR pair persists in the longer term. The INR maintains its strength for the day, with the pair trading above the key 100-day Exponential Moving Average (EMA) and the upper boundary of the descending trend channel. Further consolidation remains plausible in the near term, supported by the neutral 14-day Relative Strength Index (RSI) hovering around the 50-midline.
Looking ahead, the next upside barriers for the USD/INR pair lie at 83.72, representing the high of April 17, followed by the psychological level of 84.00. Conversely, the critical support level rests at 83.30, marking the confluence of the 100-day EMA and the upper boundary of the descending trend channel. A breach of this level could open the path towards 82.78, the low recorded on January 15.
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