The USD/INR exchange rate remains close to its all-time high of 84.14 as the Indian Rupee (INR) faces significant challenges from foreign exchange outflows. This situation arises as traders assess the Reserve Bank of India’s (RBI) policy outlook in the wake of recent inflation data.
India’s Consumer Price Index (CPI) surged to a nine-month high of 5.49% year-over-year in September, up from 3.65% in August and well above market expectations of 5.0%. This increase marks the highest inflation rate recorded this year, exceeding the RBI’s target of 4%. Consequently, market expectations for earlier rate cuts by the RBI have been moderated.
Despite these challenges, the Indian Rupee may find support from declining oil prices, given that India is the world’s third-largest oil importer. Currently, crude oil prices are under downward pressure due to concerns about global demand, which overshadow supply worries linked to ongoing conflicts in the Middle East. As of the latest reports, West Texas Intermediate (WTI) crude is trading around $70.30 per barrel, extending its losing streak for the fourth consecutive session.
In the broader market context, the US Dollar Index (DXY)—which measures the USD against six major currencies—remains at a two-month high of 103.35, a level reached on Monday. Strong employment and inflation data from last week have diminished expectations for aggressive easing by the Federal Reserve (Fed) in 2024. According to the CME FedWatch Tool, there is currently a 94.1% probability of a 25-basis-point rate cut in November, with no significant likelihood of a larger 50-basis-point reduction.
On Tuesday, Atlanta Federal Reserve Bank President Raphael Bostic indicated he expects just one more interest rate cut of 25 basis points this year, aligning with projections from the last central bank meeting. The median forecast suggests a total of 50 basis points in cuts beyond the 50 basis points already implemented in September, according to Reuters.
In Indian equity markets, foreign institutional investors have continued a trend of selling, offloading a net total of 37.32 billion rupees ($444 million) in stocks on Monday, marking their eleventh consecutive session of net selling. In contrast, domestic investors net purchased shares worth 22.78 billion rupees, as reported by Reuters.
Internationally, geopolitical developments are also influencing market dynamics. The Washington Post reported that Israeli Prime Minister Benjamin Netanyahu informed the US that Israel intends to concentrate on Iranian military targets rather than nuclear or oil infrastructure.
Additionally, Minneapolis Federal Reserve Bank President Neel Kashkari reassured markets on Monday by emphasizing the Fed’s data-dependent approach, noting ongoing improvements in the US economy, easing inflationary pressures, and a strong labor market, despite a recent uptick in the overall unemployment rate.
Technical Analysis: The USD/INR pair hovers around 84.00 on Wednesday, testing the lower boundary of an ascending channel pattern. A break below this channel could signal a shift in bullish sentiment; however, the 14-day Relative Strength Index (RSI) remains above 50, indicating that bullish momentum is still intact.
Resistance for the USD/INR pair is anticipated at its all-time high of 84.14, recorded on August 5. A breakthrough above this level could push the pair toward the upper boundary of the ascending channel, estimated at around 84.35. Conversely, if the pair dips below the psychological support level of 84.00, it may target the nine-day Exponential Moving Average (EMA) at approximately 83.97.
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