The Indian Rupee (INR) weakened in Tuesday’s Asian session despite the US Dollar (USD) trading in a consolidative theme. The decline in its Asian peers, the rise in crude oil prices, softer Indian inflation data, and a cautious market mood ahead of key US economic data contributed to the INR’s downside. However, likely intervention by the Reserve Bank of India (RBI) to sell USD to prevent further depreciation could limit the pair’s upside. Traders are focusing on the US Producer Price Index (PPI) for July for fresh impetus. Additionally, the US Consumer Price Index (CPI) and Indian Wholesale Price Index (WPI) inflation data will offer insights into the future decisions of the Federal Reserve (Fed) and the RBI, respectively.
The Indian Rupee remains weak amid multiple headwinds as India’s CPI inflation eased to 3.54% YoY in July from 5.08% in June, marking the lowest rate since August 2019. Furthermore, Indian Industrial Production rose by 4.2% in June, compared to 6.2% in the previous reading, falling short of expectations. The swaps market is pricing in steady rates by the RBI over the next three months, followed by easing in the subsequent months. The CME FedWatch Tool shows a decreased possibility of a 50 basis points (bps) interest rate cut by the Fed in September. The US Producer Price Index (PPI) is expected to ease to 0.1% month-over-month in July.
In terms of technical analysis, the USD/INR pair maintains a positive outlook on the daily timeframe, with the price holding above the key 100-day Exponential Moving Average (EMA) and the uptrend line. The 14-day Relative Strength Index (RSI) suggests further upside potential. The 84.00 psychological barrier remains a strong resistance level for USD/INR buyers, with a breakout above potentially leading to new highs. On the downside, initial support is seen near the uptrend line at 83.84.
The Indian Rupee is highly sensitive to external factors such as crude oil prices, the value of the US Dollar, and foreign investment levels. The Reserve Bank of India (RBI) intervenes in forex markets to maintain a stable exchange rate and adjusts interest rates to control inflation. Macroeconomic factors, including inflation rate, interest rates, GDP growth rate, balance of trade, and foreign investment inflows, influence the value of the Rupee. Higher growth and less negative balance of trade can strengthen the Rupee, while higher inflation can have mixed effects depending on its impact on interest rates.
In conclusion, despite the various headwinds affecting the Indian Rupee, investors are closely monitoring key economic data releases from both the US and India to gauge future monetary policy decisions by the Fed and the RBI. Technical analysis suggests a positive outlook for the USD/INR pair, with strong resistance levels to overcome for further gains. The Rupee remains influenced by external factors and central bank interventions, highlighting the importance of monitoring global economic developments for trading decisions.
