USD/INR holds positive ground ahead of US PPI data

• The Indian rupee is down in the Asian session on Tuesday.
• Weakness in Asian benchmarks, higher crude oil prices and softer Indian CPI data weigh on the INR.
• Investors will monitor July’s US PPI due on Tuesday.

The Indian Rupee (INR) weakens on Tuesday despite the US Dollar (USD) trading on a consolidating theme. A combination of a decline in its Asian peers, rising crude oil prices, softer inflation data from India and a cautious market mood ahead of key US economic data are contributing to the INR decline. However, the likely intervention of the Reserve Bank of India (RBI) to sell the USD to prevent a more significant depreciation of the local currency could limit the pair’s advantage.

Traders will focus on the US Producer Price Index (PPI) for July for further impetus. On Wednesday, the US Consumer Price Index (CPI) will provide some clues about the Federal Reserve’s (Fed) interest rate cut decisions. On the Indian ledger, wholesale price index (WPI) inflation will be closely monitored, which is expected to ease from 3.36% year-on-year in June to 2.39% in July.

Daily Digest Market Movers: Indian rupee remains weak amid several headwinds

• CPI inflation in India eased to 3.54% y/y in July from 5.08% in June. This figure was the lowest since August 2019, according to official data released on Monday.
• Indian industrial production rose 4.2 percent in June, compared with 6.2 percent in the previous reading, worse than expectations of 5.5 percent.
• The swap market is priced at constant rates by the RBI for the next three months. However, this is followed by 25 basis points (bps) of easing over the next three months, followed by another 25 basis points over the next six months.
• The CME FedWatch tool showed the possibility of a 50 basis point (bps) cut in interest rates by the Fed at the September meeting to 47.5%, down from 52.5% last Friday.
• The US Producer Price Index (PPI) is expected to fall to 0.1% month-on-month in July, from 0.2% in the previous reading.

Technical Analysis: The broader outlook for USD/INR is still positive

The Indian Rupee is trading weaker today. The USD/INR pair maintains a constructive outlook on the daily time frame, with the price holding above the 100-day exponential moving average (EMA) and the two-month-old uptrend line. The 14-day Relative Resistance Index (RSI) is well supported above the median line near 65.50, suggesting that the path of least resistance is to the upside.

The psychological barrier of 84.00 seems to be a tough nut to crack for USD/INR buyers. A decisive breakout above this level could pave the way to the all-time high of 84.24. Extended earnings could see a rise to 84.50.

On the other hand, the initial support level is seen near the uptrend line at 83.84. A breach of this level could expose the 100-day EMA at 83.52.