USD/INR quotations are weakening ahead of CPI in the US and the Fed’s decision on interest rates

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USD/INR quotations are weakening ahead of CPI in the US and the Fed’s decision on interest rates

  • The Indian rupee gains value on Wednesday on the back of a stronger US dollar.
  • Potential currency intervention by the RBI may save the INR from further weakening.
  • India’s Consumer Price Index (CPI) for May will be released on Wednesday ahead of key US events.

The Indian rupee (INR) traded positively on Wednesday despite a stronger US dollar (USD). The downside for INR may be confined as the Reserve Bank of India (RBI) is likely to prevent depreciation of the local currency. On the other hand, weakness in Asian markets, rise in crude oil prices and cautious sentiment may result in a decline in INR.

On Wednesday, the May consumer price indices (CPI) and industrial production in India will be published. As for the US, CPI inflation data will be released before the Federal Reserve (Fed) meeting. The Fed is widely expected to keep key interest rates on hold at its June meeting on Wednesday. Investors will be closely watching Fed Chair Jerome Powell’s message during the press conference for more clues on any changes to the interest rate scatter chart. The hawkish tone of Powell’s statement from the Fed may strengthen the US dollar and have a positive impact on the pair’s quotations.

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Daily Digest Market Changes: Indian Rupee Gains Strength Ahead of Key Events in Both India and US

  • USD/INR’s one-month implied volatility declined to 2.20%, down from a six-month high of 3.35% in May.
  • “I don’t think there are many new positions (in USD/INR) at the moment as people are mainly waiting for Fed and US (inflation) data,” said a currency trader at a private bank.
  • CPI inflation in India is expected to enhance to 4.90 y/y in May from 4.83% in April.
  • The World Bank said in its June Global Economic Prospects report that India will remain the fastest-growing of the world’s largest economies, with sustained average annual growth of 6.7% in FY25-27.
  • It is estimated that the headline CPI in the US will enhance by 3.4% y/y in May, while the core CPI for May will enhance by 3.5% y/y.
  • Interest rate futures are pricing in about 38 basis points (bps) of rate cuts in 2024, up from almost 50 basis points last week.

Technical Analysis: Positive outlook for USD/INR continues in the long term

The Indian rupee is stronger on this day. The positive outlook for USD/INR is prevailing as the pair is trading above the key 100-day exponential moving average (EMA) and the upper boundary of the downtrend channel.

Further consolidation cannot be ruled out in the near term, supported by a neutral 14-day relative strength index (RSI) that is trending around the midline of 50.

The next growth barrier will appear at 83.72, the maximum from April 17. Further north, the next hurdle to watch is the psychological level of 84.00. On the other hand, a key support level is seen at 83.30, which represents the confluence of the 100-day EMA and the upper boundary of the downtrend channel. A break of this level will pave the way to 82.78, the January 15 low.

US dollar price this week

The table below shows the percentage change in the United States Dollar (USD) against the major currencies traded this week. The US dollar was the weakest against the New Zealand dollar.

USD EUR GBP BOOR AUD JPY NZD CHF
USD 0.34% -0.12% -0.08% -0.53% 0.23% -0.65% 0.17%
EUR -0.34% -0.47% -0.42% -0.86% -0.12% -0.99% -0.18%
GBP 0.11% 0.46% 0.05% -0.40% 0.35% -0.53% 0.30%
BOOR 0.08% 0.42% -0.05% -0.44% 0.32% -0.57% 0.24%
AUD 0.55% 0.89% 0.42% 0.44% 0.73% -0.13% 0.69%
JPY -0.22% 0.14% -0.34% -0.30% -0.73% -0.87% -0.07%
NZD 0.64% 0.96% 0.50% 0.56% 0.12% 0.87% 0.80%
CHF -0.17% 0.18% -0.29% -0.24% -0.69% 0.06% -0.81%

The heat map shows the percentage changes of the major currencies relative to each other. The base currency is selected from the left column and the quote currency from the top row. For example, if you select Euro from the left column and move along the horizontal line to Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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