On Thursday, the Indian Rupee (INR) experienced weakening against the US Dollar (USD), driven by persistent demand from local oil companies and other importers. The USD benefited from a resurgent demand following the US Federal Reserve’s (Fed) decision to maintain a hawkish stance, despite softer-than-expected US May inflation figures. This dynamic created a push-pull effect on the INR, influenced by multiple market factors, although the Reserve Bank of India (RBI) intervened in the foreign exchange (FX) market to mitigate the INR’s decline in the interim.
Market attention now turns to key US economic indicators due later on Thursday, including weekly Initial Jobless Claims, the Producer Prices Index (PPI), and a speech by Fed’s John Williams. Additionally, Friday will bring focus on India’s Wholesale Price Index (WPI) Inflation data, where higher-than-anticipated consumer inflation could potentially bolster the Indian Rupee and limit further upside for the USD/INR pair in the short term.
Market Highlights:
India’s Consumer Price Index (CPI) inflation eased to 4.75% in May, marking a 12-month low and falling below the market expectation of 4.90%.
US CPI inflation moderated to 3.3% year-on-year in May, down from 3.4% in April, below the market consensus.
The core CPI, excluding food and energy, rose by 3.4% year-on-year and 0.2% month-on-month in May, slightly below expectations.
The Fed maintained its benchmark lending rate range of 5.25%–5.50% at its June meeting, with indications of a potential increase by the end of 2024.
Fed Chair Jerome Powell noted the restrictive monetary policy’s impact on inflation during the press conference, highlighting the Fed’s cautious approach to further adjustments pending sufficient progress on inflation.
Technical Analysis: USD/INR Outlook
In technical terms, the USD/INR pair maintains a bullish trajectory, supported by trading above the key 100-day Exponential Moving Average (EMA) and the upper boundary of a descending trend channel on the daily timeframe.
Near-term momentum appears neutral as indicated by the 14-day Relative Strength Index (RSI) hovering around the 50-midline.
Potential upside resistance levels for USD/INR include 83.60 and 83.72, with further barriers at the psychological level of 84.00.
A reversal scenario could emerge if USD/INR breaks below the critical support at 83.35, which aligns with the 100-day EMA and descending trend channel upper boundary, potentially targeting support at 83.00 and 82.78 thereafter.
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