The Indian Rupee (INR) has extended its gains, reaching monthly highs around 83.65 on Wednesday. This uptick comes amid expectations of a deeper Federal Reserve (Fed) rate cut and increased sales of the US Dollar. However, the INR’s rally may face headwinds from rising crude oil prices, which could potentially curb the USD/INR pair’s losses.
Attention is focused on the Fed’s interest rate decision later on Wednesday, with a rate cut widely anticipated for its September meeting. The Fed will also release its Summary of Economic Projections, or ‘dot-plot,’ which is expected to provide insights into future rate cuts over the coming year. Anticipated large rate reductions may exert short-term selling pressure on the US Dollar.
Daily Digest Market Movers: INR Shows Resilience Ahead of Key US Event
India’s Wholesale Price Index (WPI)-based inflation fell to a four-month low of 1.31% year-on-year in August, down from 2.04% previously and below the market expectation of 1.80%. India’s merchandise trade deficit widened to $29.65 billion in August, compared to $23.5 billion in July, according to data from the Ministry of Commerce and Industry.
India’s foreign exchange reserves hit a record high of $689.2 billion as of September 6, according to the Reserve Bank of India (RBI). In the US, Retail Sales unexpectedly rose by 0.1% month-over-month in August, surpassing the previous 1.1% increase and market expectations of a 0.2% decline. Industrial Production also increased by 0.8% month-over-month, improving from a 0.6% decline previously and exceeding the forecast of 0.2%.
According to the CME Fedwatch Tool, futures markets have priced in a nearly 63% probability of a 50 basis point rate cut, up from 30% a week ago, with a 37% chance for a 25 basis point cut.
Technical Analysis: USD/INR Remains Bullish in the Long Term
The Indian Rupee is trading stronger on the day, with the USD/INR pair fluctuating within a rectangle pattern on the daily chart. Despite the current strength, the pair maintains a bullish long-term outlook as it remains above the key 100-day Exponential Moving Average (EMA). However, further declines cannot be ruled out, with the 14-day Relative Strength Index (RSI) in the bearish zone below the midline, indicating short-term support for sellers.
The 83.90-84.00 zone represents a significant resistance level for USD/INR buyers, acting as both the upper boundary of the rectangle pattern and a psychological barrier. A break above this level could push the pair towards the next resistance at 84.50.
Conversely, initial support is at the September 17 low of 83.70. A breach below this level could lead to further decline towards the 100-day EMA at 83.64.
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