USD/INR gains ground ahead of US CPI inflation data

• The Indian rupee weakens in the Asian session on Thursday.
• Weak sentiment in Indian markets and a firmer USD undercut the INR.
• US CPI inflation data will take center stage on Thursday.

The Indian Rupee (INR) is trading on a weaker note on Thursday. A subdued trend in the domestic market and a stronger US dollar (USD) is weighing on the local currency. However, robust Indian macroeconomic fundamentals and inclusion of government bonds in global indices would attract foreign investors and lift the INR.

The release of the main US Consumer Price Index (CPI) inflation data will be the highlight on Thursday. Initial US jobless claims will be released on the same day, and the Federal Reserve’s (Fed) Lisa Cook and John Williams are scheduled to speak.

Daily Digest Market Movers: Indian rupee remains weak ahead of key US inflation data

• FTSE Russell said on Tuesday that Indian sovereign bonds will be added to its Emerging Markets Government Bond Index (EMGBI), following a similar move by JP Morgan and Bloomberg Index Services.
• The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 6.5% for the 10th consecutive meeting, but changed the policy stance to neutral since the withdrawal of the accords.
• The Indian central bank has kept its FY25 CPI inflation estimate unchanged at 4.5%, while keeping FY25 Gross Domestic Product (GDP) growth estimates at 7.2%.
• According to minutes released Wednesday, members of the Federal Open Market Committee (FOMC) agreed to cut interest rates in September but were unsure how aggressively to do so, ultimately deciding on a half-percentage-point move in an effort to balance inflation concerns with labor market concerns. .
• Boston Fed President Susan Collins said Wednesday it was “prudent” for officials to cut interest rates by half a percentage point last month as inflation eases and the economy becomes more vulnerable to shocks.
• San Francisco Fed President Mary Daly noted on Wednesday that she was “fully supportive” of the Fed cutting interest rates by half a percentage point at its September meeting. Daly added that one or two more rate cuts this year were likely if the economy performed as she expected.
• Dallas Fed President Lorie Logan said Wednesday she supported last month’s substantial interest rate cut but favored smaller cuts in the future because there are “still real” risks to rising inflation.

Technical Analysis: Bullish view of USD/INR remains intact in the long term

The Indian Rupee is lower on the day. The USD/INR pair maintains a constructive view on the daily chart, with the price holding above the downtrend line and the 100-day exponential moving average (EMA). The 14-day Relative Strength Index (RSI) is above the median line near 58.60, suggesting that the support level is likely to hold rather than break.

The psychological level of 84.00 seems to be a tough nut to crack for the USD/INR bulls. Bear-sustained momentum above this level could see a rise to the all-time high of 84.15 on the way to 84.50.

On the other hand, the first downside target is seen near the resistance-turned-support level at 83.90. Any further selling could expose the 100-day EMA at 83.67. The key level of contention appears at 83.00, representing the round mark and the May 24 low.