USD/INR recovers ahead of India’s WPI inflation and US retail sales data

• The Indian Rupee (INR) is losing ground in the Asian session on Tuesday.
• Renewed USD demand, higher oil prices undercut INR; growing expectations of deeper Fed rate cuts could limit its downside.
• Indian WPI inflation and US retail sales data will be the main points later on Tuesday.

The Indian Rupee (INR) is falling on Tuesday, snapping a three-day winning streak. Robust demand for the US dollar (USD) from local importers, particularly oil companies, is weighing on the local currency. Further, recovery in crude oil prices could limit INR appreciation as India is the third largest oil consumer after the United States (US) and China.

However, firmer bets on Federal Reserve (Fed) rate cut, weaker greenback and significant foreign fund inflows into Indian equities could support INR appreciation. Investors will watch inflation, food and fuel reports from the Indian Wholesale Price Index (WPI) on Tuesday. On the US docket, retail sales will be released, which are expected to rise 0.2% in August, compared to a 1.0% increase in July.

Daily Digest Market Movers: Indian rupee looks vulnerable as traders await key events

• Inflation India’s Wholesale Price Index (WPI) is expected to ease to 1.80% y/y in August from 2.04% in July.
• India’s economy is expected to grow at a rate of around 7.5% or more, according to Reserve Bank of India (RBI) Governor Shaktikanta Das. This projection is higher than RBI’s current forecast of 7.2% for the current financial year.
• The US Empire State Manufacturing Index improved to 11.5 in September from a fall of 4.7 in August, better than the estimate of a 3.9% decline.
• Fed funds futures show investors are increasingly betting that the US Fed will cut by 50 basis points (bps) instead of 25 bps. Traders are now pricing in a near 67% chance of a 50bps cut, up from 50% on Friday, according to the CME FedWatch tool.
• “We were in favor of a 50 basis point cut, but the latest jobs and inflation numbers suggest officials are more likely to vote in favor of 25 basis points,” ING Bank analysts said.

Technical Analysis: USD/INR still maintains constructive bias

Indian rupee weakens on that day. According to the daily chart, the bullish outlook of the USD/INR pair remains intact as the price is holding above the 100-day exponential moving average (EMA). However, another downside cannot be ruled out as the 14-day Relative Strength Index (RSI) is in bearish territory below the midline.

A decisive break above the 83.90-84.00 region, the resistance level turned support and psychological mark, could trigger another retracement to the immediate upside barrier around 84.50.

On the downside, the September 16 low at 83.82 acts as an initial support level for USD/INR. Any further selling below this level will expose the 100-day EMA at 83.64.