USD/INR strengthens on risk sentiment, Michigan Consumer Sentiment

• The Indian rupee could appreciate as US data reinforces the likelihood of an aggressive Fed rate cut.
• The CME FedWatch tool suggests the probability of a 50 bps rate cut has risen sharply to 41.0%.
• India’s consumer price index rose 3.65 percent in August, compared to expectations of 3.55 percent and 3.54 percent in July.

The USD/INR pair is holding on to its position on Friday, following earlier losses, as recent US economic data strengthened the chances of an aggressive interest rate cut by the Federal Reserve (Fed) next week.

According to the CME FedWatch tool, markets are fully pricing in a rate cut of at least 25 basis points (bps) by the Federal Reserve at its September meeting. The probability of a 50 bps rate cut rose sharply to 41.0% from 14.0% a day ago.

India’s retail inflation in August was slightly higher than economists expected amid a strong rise in vegetable prices, Reuters cited government data released on Thursday. The consumer price index (CPI) rose 3.65 percent in August, compared with an expected 3.55 percent and July’s 3.54 percent.

On Thursday, Reuters quoted five traders as saying that the Reserve Bank of India (RBI) may have intervened at the open to prevent the Indian rupee (INR) from weakening beyond the 84.00 level. Traders await Government Trade Deficit and foreign reserves, USD scheduled for release on Friday.

Daily Digest Market Movers: Indian rupee may hold ground on improving risk sentiment

• Reserve Bank of India Governor Shaktikanta Das told the Bretton Woods Committee’s annual Future of Finance Forum on Friday that India’s growth potential is 7.5 percent or more, which is slightly above the central bank’s forecast for year 2024 of 7.2%, per Reuters.
• The U.S. producer price index (PPI) rose 0.2% month-on-month in August, beating forecasts for a 0.1% rise and the previous 0.0%. Meanwhile, the core PPI accelerated to 0.3% on the month, versus the expected 0.2% increase and the 0.2% contraction in July.
• US initial jobless claims rose slightly in the week ended September 6, rising to an expected 230,000 from the previous reading of 228,000.
• India’s industrial production rose 4.8 percent in July, slightly above market expectations of 4.7 percent, after a 4.2 percent rise in the previous month.
• India is considering relaxing investment rules for Chinese firms to boost its manufacturing sector. In addition, the country has eased the issuance of visas for Chinese citizens to support local manufacturing. India’s trade deficit with China has almost doubled since 2020, according to a Reuters report.
• The US consumer price index fell to 2.5% from a year earlier in August, from the previous reading of 2.9%. The index fell below the expected value of 2.6%. Meanwhile, headline CPI was 0.2% on the month. Core CPI excluding food and energy, was unchanged at 3.2% year-on-year. On a monthly basis, the core CPI rose to 0.3% from the previous reading of 0.2%.
• The first US presidential debate between former President Donald Trump and Democratic nominee Kamala Harris of Pennsylvania has been won by Harris, according to a CNN poll. The debate began with a critical focus on the economy, inflation and economic policies.

Technical Analysis: USD/INR breaks below the symmetrical triangle, hovering below 84.00

USD/INR is trading around 83.90 on Friday. Analysis of the daily chart shows that the USD/INR pair has broken below the symmetrical triangle pattern, indicating the emergence of a bearish bias. However, the 14-day Relative Strength Index (RSI) remains slightly above the 50 level, suggesting that a retest of the triangle pullback cannot be ruled out.

On the downside, USD/INR may retest its six-week low around 83.72, followed by the psychological level of 83.50.

In terms of resistance, the nine-day EMA at 83.91 could serve as an immediate barrier, aligning with the lower boundary of the symmetrical triangle near 83.95.

Additional resistance appears at the upper limit of the symmetrical triangle near the 84.00 level. A breakout above this point could propel the pair towards the all-time high of 84.14 hit on August 5.

USD/INR: Daily Chart