The USD/INR currency pair is showing renewed upward momentum as markets transition through Thursday’s Asian session, with a particular focus on upcoming US economic data. The Indian Rupee (INR) is trading weaker amid declining domestic inflation pressures, raising speculation that the Reserve Bank of India (RBI) may opt for another interest rate cut in the near term.
This development places additional downside pressure on the INR, even as global risk sentiment sees some improvement. Raliplen brokers bring analytical depth and industry insight to the topic in their article.
Indian Rupee Weakens as Inflation Softens
The softening of India’s retail inflation, which has fallen to its lowest level since July 2019, is a primary catalyst behind the INR’s underperformance on Thursday. Data from the Commerce and Industry Ministry revealed that Wholesale Price Inflation (WPI) dropped to 0.85% in April, down from 2.05% in March. This figure came in well below market expectations of 1.76%, signaling reduced cost pressures across the economy.
This sharp decline in inflation increases the likelihood of further monetary easing by the RBI. Investors are now pricing in the possibility that the RBI may lower rates at its next policy meeting, adding to the downward momentum for the INR.
The Ministry’s report noted that the positive rate of inflation in April was driven by rising prices in sectors such as the manufacture of food products, chemicals, transport equipment, and machinery, suggesting that inflation is not uniform across sectors. Nevertheless, the broad disinflationary trend provides the RBI with room to maneuver, especially in a global environment of elevated interest rates.
Traders Eye Key US Data: Retail Sales and PPI
Despite the INR’s weakness, attention is increasingly turning toward high-impact US economic data scheduled for release later on Thursday. The US Retail Sales and the Producer Price Index (PPI) reports for April are expected to give further clues about the trajectory of the US economy and, more importantly, the Federal Reserve’s interest rate outlook.
Markets have recently recalibrated their expectations for Fed policy. Following remarks from San Francisco Fed President Mary Daly, who emphasized the resilience of the US economy, investors have delayed their anticipated timeline for rate cuts. According to LSEG data, there is now a 74% probability of a 25 basis point (bps) cut in September, compared to prior expectations for a move in July.
Technical Outlook: USD/INR Holds Below Key Resistance
From a technical perspective, the USD/INR pair maintains a bearish bias in the longer term, with prices continuing to trade below the 100-day Exponential Moving Average (EMA). This critical resistance level, currently around 85.60, represents a significant hurdle for bullish momentum.
The 14-day Relative Strength Index (RSI) is currently hovering near the neutral 50 mark, indicating indecisiveness in the short-term momentum. However, unless the pair breaks decisively above the 100-day EMA, the downtrend may resume.
Key Support Levels:
- 84.95 – April 28 low
- 84.61 – May 12 low
- 84.12 – May 5 low
These levels offer incremental downside targets for traders betting on further INR strength or USD weakness.
Key Resistance Levels:
- 85.60 – 100-day EMA
- 86.00–86.05 zone – Round number resistance and upper trend channel
A break above 85.60 would indicate a shift in technical momentum, possibly opening the door for a move toward the 86.00–86.05 region. This level not only represents a psychological barrier but also coincides with the upper boundary of the downward trend channel, making it a crucial area for potential trend reversal.
Fundamental vs Technical Forces in Play
The USD/INR pair remains trapped between competing macroeconomic forces. On one hand, the INR is pressured by domestic inflation data and the associated rate cut risks from the RBI. On the other hand, US Dollar weakness, a cooling trade war narrative, and lower crude oil prices are offering the INR some modest support.
Moreover, the softening of global oil prices is typically INR-positive, given India’s dependence on oil imports. This helps ease pressure on India’s current account balance and supports the exchange rate. However, unless there’s a clear shift in US data or dovish commentary from the Fed Chair, the INR may continue to struggle for direction.
Conclusion
As the USD/INR pair gains momentum, traders are closely watching the interplay of domestic inflation trends in India and critical economic data from the US. With India’s inflation dropping and the RBI potentially easing policy further, the INR faces downside risks. However, much will depend on how the upcoming US Retail Sales, PPI data, and Powell’s comments influence the Fed’s rate cut outlook.
The pair is currently in a consolidation phase, with technical and fundamental signals offering mixed cues. Traders should monitor key support and resistance levels, as well as developments in global risk sentiment, to better position themselves for the next move in the USD/INR pair.
