- Summary:
- The USDINR currency pair broke under pressure from India's inflation figures, but the rupee's fundamentals look bleak may not hold for long.
Strong inflation data from India broke the US dollar’s hold of the rupee on Tuesday, with the USDINR pair down by 0.06% and trading at 86.62 at the time of writing. India’s Wholesale Price Index (WPI) reading for December came out at 2.37%, substantially up from November’s 1.89% and exceeding the forecast rate of 2.30%.
Inflation Figures Temporarily Subdue USDINR
The forecast-beating wholesale inflation figures subdued the impact of a softer consumer inflation rate as concern rose over its implications on the Reserve Bank of India’s monetary policy direction.
India’s CPI reading for December was at 5.22%, down from November’s 5.48% and below the forecast 5.30%. The RBI’s higher-for-longer interest rates have failed to tame the US dollar’s rise to record highs against the rupee while potentially suppressing the economy.
Despite Tuesday’s gains USDINR’s upside is limited by rising crude oil prices. India is the world’s third-largest importer of dollar-denominated crude oil. The commodity’s price has risen by about 5.8% in the last five days. This has raised the demand for the US dollar, exerting downward pressure on the rupee.
Also, India’s equities markets have seen a significant outflows of foreign capital, triggered by an extended decline. The country’s two leading benchmark indices, the Nifty 50 and Sensex Index have each declined by more than 5% in the last four weeks. Approximately $2.67 billion in foreign investor capital have left Indian equities since the year begun. A continuation of the trend will likely keep USDINR on the ascending trajectory.
USDINR Forecast
USDINR pivots at 86.66 and the momentum indicators favours the downside to prevail. The currency pair will likely find the first support at 86.56, but a stronger downward momentum could take it lower to test 86.46.
Conversely, going above 86.66 will swing the momentum to the upside, with the first resistance likely to be at 86.72. The pair will invalidate the downside thesis if it breaches that level. Also, an extended control by the buyers could send it higher to test the second resistance at 86.80.
