- The Indian rupee has dropped to nearly 87.90 against the US dollar as inflation in India rose moderately in July.
- India’s retail inflation rate increased to 1.55% year-on-year, marking the lowest level seen in eight years.
- The US and China have both consented to extend their 90-day tariff ceasefire.
On Tuesday, during the latter part of India’s trading hours, the Indian rupee (INR) neared 87.90 against the US dollar (USD). The USD/INR pairs saw an uptick as the Retail Consumer Price Index (CPI) figures pointed to a decline.
For July, the retail inflation rate rose by 1.55% annually, which was lower than the anticipated 1.76% and declined from a previous rate of 2.1%. This is the most moderate figure recorded since June 2017.
This lower price pressure relative to the Reserve Bank of India’s (RBI) inflation goal could open the door for potential interest rate cuts in the coming months. The RBI has already cut its key report rate by 100 basis points (BPS) to 5.5% this year.
In their latest monetary policy meeting, the RBI also revised its CPI forecast for the current fiscal year (FY) down to 3.1%, from an earlier projection of 3.7%. The central bank has maintained its report rate steady.
The outlook for the Indian rupee remains murky amid ongoing trade tensions with the US. Trade representatives from both nations are set to meet for a sixth round of discussions in New Delhi on August 25th. Currently, trade relations are somewhat fraught, especially after US President Donald Trump raised tariffs on imports from India, especially regarding oil purchases from Russia.
Additionally, foreign institutional investors (FII) resumed selling, offloading Rs. 1,202.65 crore worth of Indian stocks on Monday. Although there was a flow of about Rs. 1,932.81 crore in foreign funds reported last Friday, portfolio investors have generally been net sellers throughout August.
Daily Digest Market Mover: Indian Rupee before US inflation data
- The Indian rupee is trailing the performance of the US dollar while investors await the US CPI data for July. At the moment, the US Dollar Index (DXY), which gauges the dollar against six major currencies, has seen a two-day gain of approximately 98.50.
- Market participants are keenly watching the CPI data to determine whether the inflation driven by tariffs is a short-term blip or a lasting issue. The June CPI report indicated rising costs for many imported goods in the US.
- Economists are predicting an increase in both headline and core CPIs—excluding volatile food and energy prices—at a quick pace of 2.8% and 3.0% year-on-year, respectively.
- Heightened inflationary pressures could prompt traders to reassess their expectations for a Federal Reserve interest rate cut in September.
- According to the CME FedWatch tool, there’s an 88% likelihood that the Fed will lower federal funding rates by 25 basis points (BPS) from 4.00% to 4.25%.
- On the global front, both the US and China have agreed to maintain their 90-day tariff ceasefire. Earlier in the day, China’s Commerce Department stated it was making efforts to ease non-tariff barriers for American businesses and aims to halt adding US companies to its list of unreliable entities for 90 days.
Technical Analysis: USD/INR poised to exceed 88.00
On Tuesday, the USD/INR pair is expected to approach 87.90. The short-term trend appears bullish, with the 20-day exponential moving average (EMA) positioned around 87.24.
The 14-day relative strength index (RSI) remains within the 60.00-80.00 range, indicating strong bullish momentum.
Looking ahead, the 20-day EMA serves as a significant support level. Meanwhile, the peak on August 5th, around 88.25, is noted as an essential barrier for the pair.
