• The Indian rupee (INR) is depreciating during Tuesday’s European session.
• Inflation in India, measured by the Wholesale Price Index (WPI), fell to 1.31% year-on-year in August from 2.04% in July and was lower than the expected 1.80%.
• Renewed demand for the US dollar and higher oil prices are weakening the Indian rupee; rising expectations of a deeper interest rate cut by the Federal Reserve could limit its decline.
• US retail sales data will be the top story on Tuesday.

The Indian rupee (INR) fell on Tuesday, snapping a three-day winning streak. Wholesale Price Index (WPI)-based inflation in India eased to 1.31% year-on-year in August from 2.04% in the previous reading. This was below the market consensus of 1.80%, according to the latest official data released on Tuesday. The INR traded with minor losses on a cooler inflation report in India.

Meanwhile, powerful demand for the US dollar (USD) from local importers, especially oil companies, is weighing on the local currency. Moreover, a rebound in crude oil prices could limit the INR’s growth as India is the third largest consumer of oil after the United States (US) and China.

However, stronger bets on a jumbo Federal Reserve (Fed) rate cut, weaker Greenback and significant foreign fund inflows into Indian equities could support the INR appreciation. Looking ahead, investors will be closely watching the US retail sales on Tuesday. The figure is expected to rise by 0.2% MoM in August compared to a 1.0% rise in July.

Daily Market Update: Indian rupee looks volatile as traders await key events

• “The positive inflation rate in August 2024 is primarily due to the increase in the prices of food products, processed food products, other production, textile production and production of machinery and equipment, etc.,” the government said.
• The Indian 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 forecast is higher than the RBI’s current forecast of 7.2% for the current financial year.
• New York State’s industrial production index rose to 11.5 in September from a decline of 4.7 in August, beating estimates for a 3.9% decline.
• Federal funds futures are showing investors are increasingly betting that the U.S. Federal Reserve will cut rates by 50 basis points (bps) instead of 25 bps. Traders are now pricing in a nearly 67% chance of a 50 bps cut, up from 50% on Friday, according to the CME FedWatch Tool.
• “We had been advocating a 50bp cut, but the latest employment and inflation data suggest officials will be more likely to vote for a 25bp cut,” ING Bank analysts said.

Technical Analysis: USD/INR pair still maintains constructive outlook

The Indian Rupee is weakening during the day. As per the daily chart, the bullish outlook of the USD/INR pair remains intact as the price is holding above the crucial 100-day exponential moving average (EMA). However, a further decline cannot be ruled out as the 14-day Relative Strength Index (RSI) is in a bearish zone below the midline.

A decisive breakout of the 83.90-84.00 range, which is a support level and now resistance and a psychological boundary, may trigger another rebound towards the direct growth barrier around 84.50.

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