- The Indian rupee rose in early European trading on Monday.
- India's wholesale price index (WPI) inflation rate rose to 1.84% year-on-year in September from 1.31% in August, but slower than expected at 1.90%.
- Rising oil prices and sustained outflows from domestic stocks could weigh on the Indian rupee. RBI intervention may help contain losses.
- The US Empire State Manufacturing Business Index for October will be released late Monday.
The Indian rupee (INR) recovered some lost ground on Monday after retreating to an all-time low in the previous session. India's wholesale price index (WPI)-based inflation rate in September was 1.84% year-on-year, up from 1.31% in the previous year. The figure was below the market consensus of 1.90%, according to the latest official data released on Monday. The Indian rupee is trading modestly higher despite cooling inflation reports in India.
Concerns over the recent rise in oil prices amid geopolitical tensions, a strong sell-off by foreign investors from the stock market and increased demand for the dollar from foreign banks could undermine the local currency. Nevertheless, there is a possibility of Reserve Bank of India (RBI) intervention with US dollar selling from state-owned banks, which could cap the downside of the INR. Later on Monday, the Empire State Manufacturing Business Index for October will be released.
Daily Digest Market Drivers: Indian Rupee Recovers, Potential Upside Looks Limited
- “Amid FII fund outflows and soaring oil prices, the Indian rupee fell below $84 for the first time due to demand from foreign banks. The slump in the domestic market also weighed on the rupee,” said BNP Paribas Sharekan Research Analyst. List, said Anuj Chaudhary.
- Annual PPI in September rose 1.8% year-on-year (up 1.9% in August), exceeding market expectations of 1.6%. Core PPI for the same period rose 2.8% year-on-year, beating analysts' expectations of 2.7%.
- On a monthly basis, US PPI was flat in September, while core PPI rose 0.2% over the same period.
- The University of Michigan Consumer Confidence Index was 68.9 in October, down from 70.1 in September and below the consensus of 70.8. As of September, five-year consumer inflation expectations were 3.0%.
- According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points in the swap market is 86.8%, up from 83.3% before the PPI data was released.
Technical analysis: USD/INR broad trend remains positive
The Indian rupee was trading in positive territory on the day. The positive view on the USD/INR pair remains as it remains above the uptrend line and the key 100-day exponential moving average (EMA) on the daily time frame. Additionally, the 14-day Relative Strength Index (RSI) sits above the midline near 64.20, suggesting that the uptrend is more likely to gain traction than to reverse.
The first upside barrier for USD/INR appears near the all-time high of 84.15. A continued move above this level could pave the way for a test of 84.50.
Conversely, the 83.90 level, which turned from resistance to support, serves as the initial support level for the pair. A breakout of the aforementioned levels could lead to a fall to the 100-day EMA of 83.69 and then to the round mark and May 24 low of 83.00.
