The USD/INR currency pair edged higher during Thursday’s early European session, as the Indian Rupee (INR) weakened on the back of soft domestic inflation data, while market participants await key US economic releases, including April Retail Sales and the Producer Price Index (PPI).
This movement reflects a blend of domestic economic softness in India and external macroeconomic expectations tied to the US dollar. As a result, the USD/INR pair has regained near-term traction, although broader technical signals still suggest a bearish bias for the greenback against the rupee.
NordaLueur analysts offer a clear, data-driven perspective on this issue in their publication.
INR Weakens on Softer Retail and Wholesale Inflation
The Indian Rupee came under renewed pressure following a weaker-than-expected retail inflation print, which marked its lowest level since July 2019. This bolsters the case for the Reserve Bank of India (RBI) to pursue additional monetary easing, likely at its next policy meeting.
India’s Wholesale Price Inflation (WPI) data further reinforced this trend. According to the Ministry of Commerce and Industry, April WPI eased to 0.85%, a 13-month low, down from 2.05% in March and well below the consensus estimate of 1.76%.
This drop was attributed to lower inflation in several sectors, with modest increases seen only in the manufacture of food products, chemicals, and transport equipment. Importantly, cooling inflation opens the door for the RBI to maintain or cut benchmark rates, thus reducing the attractiveness of INR-denominated assets for global investors.
External Factors: Crude Oil, USD Weakness, and Fed Cues
While domestic factors apply downward pressure on the INR, external drivers provide some counterbalance. A de-escalation of trade tensions between the United States and China, coupled with a pullback in global crude oil prices, helps mitigate the impact on the rupee. Lower oil prices benefit India, a major crude importer, by reducing its current account deficit and lowering imported inflation.
Moreover, the US Dollar Index (DXY) has shown some weakness recently, potentially limiting the extent of USD/INR upside. However, this sentiment may shift depending on Thursday’s US macroeconomic data and the tone struck by Federal Reserve (Fed) officials.
All Eyes on US April Retail Sales and PPI Data
The US economic calendar features two high-impact events later today:
- Retail Sales (April)
- Producer Price Index (PPI) (April)
These reports will offer critical insight into the US consumer landscape and inflationary pressures—two elements central to the Fed’s monetary policy trajectory.
San Francisco Fed President Mary Daly commented on Wednesday that the US economy remains robust, allowing policymakers to remain patient and data-dependent. Meanwhile, markets have lowered expectations for Fed rate cuts in 2025. LSEG data shows a 74% probability of a 25 basis-point rate cut in September, a notable shift from the previous consensus of a July rate move.
The Fed’s posture will have direct implications on US Treasury yields and, by extension, the USD’s performance against emerging market currencies like the INR. If retail sales and PPI come in stronger than expected, they may reinforce the Fed’s hawkish hold, strengthening the USD and pushing USD/INR higher.
Technical Analysis: USD/INR Retains a Bearish Bias, For Now
Despite Thursday’s intraday uptick, the long-term technical picture for USD/INR remains bearish, largely due to the pair’s position below the 100-day Exponential Moving Average (EMA) on the daily chart.
The 14-day Relative Strength Index (RSI) is hovering around the neutral 50 mark, indicating a lack of strong directional momentum. This may lead to short-term sideways movement or consolidation, although intraday volatility could increase post-US data.
Key Support Levels:
- 84.95 – Low of April 28
- 84.61 – Low of May 12
- 84.12 – Low of May 5
A decisive break below 84.95 could invite further downside, with traders targeting the lower supports sequentially.
Key Resistance Levels:
- 85.60 – 100-day EMA
- 86.00–86.05 – Psychological round number and upper channel boundary
A breach above 85.60 could spark a rally toward the 86 handle, shifting near-term sentiment toward a bullish bias.
Conclusion: Focus Shifts to US Data and Fed Guidance
The USD/INR pair is at a critical juncture, balancing domestic economic weakness in India with global macro themes. The softening inflation in India increases the probability of RBI rate cuts, eroding INR support. However, gains in USD/INR may be capped if the US Retail Sales and PPI disappoint, or if Fed Chair Jerome Powell’s speech leans dovish.
For now, market participants are positioned defensively ahead of the data deluge, with technical levels and Fed signals likely to determine the next breakout direction. The pair’s reaction to Thursday’s events could set the tone for INR trading into next week, especially if volatility picks up on rising interest rate differentials between the US and India.
