USD/INR remains stronger as traders evaluate RBI's policy outlook following inflation data

• The Indian Rupee faces challenges due to foreign exchange outflows.
• India's annual inflation rose to a nine-month high of 5.49% in September, dampening the likelihood of RBI's rate cuts.
• The downside of the INR could be restrained due to falling Oil prices, as India is world's third-largest Oil importer.

The USD/INR pair remains near its all-time high at 84.14 as the Indian Rupee (INR) grapples with challenges stemming from foreign exchange outflows. This situation arises as traders evaluate the policy outlook for the Reserve Bank of India (RBI) in light of the recent inflation data from India.

India's Consumer Price Index (CPI) rose to a nine-month high of 5.49% year-over-year in September, up from 3.65% in the previous month and well above market expectations of 5.0%. This increase represents the highest inflation rate recorded this year, surpassing the Reserve Bank of India's (RBI) target of 4%. As a result, expectations for earlier rate cuts by the RBI have been tempered.

The Indian Rupee may receive support from falling Oil prices, given that India is the world's third-largest Oil importer. Crude Oil prices are facing downward pressure due to concerns about global demand, which have outweighed the impact of supply worries related to the ongoing uncertainty in the Middle East conflict.

West Texas Intermediate (WTI) Oil price extends its losing streak for the fourth successive session, trading around $70.30 per barrel, at the time of writing.

Daily Digest Market Movers: Indian Rupee struggles due to foreign exchange outflows

• The US Dollar (USD) continues to strengthen, bolstered by strong employment and Consumer Price Index (CPI) data that have lowered expectations for aggressive easing by the Federal Reserve (Fed). Markets are now projecting a total of 125 basis points in rate cuts over the next 12 months.
• According to the CME FedWatch Tool, there is currently a 94.1% probability of a 25-basis-point rate cut in November, with no expectation of a larger 50-basis-point reduction.
• On Tuesday, Federal Reserve Bank of Atlanta President Raphael Bostic stated that he anticipates just one more interest rate cut of 25 basis points this year, as reflected in his projections during last month's US central bank meeting. "The median forecast was for 50 basis points beyond the 50 basis points already implemented in September, according to Reuters.
• On Monday, Foreign institutional investors sold a net total of 37.32 billion rupees ($444 million) in stocks, marking their eleventh consecutive session of net selling. In contrast, domestic investors net purchased shares valued at 22.78 billion rupees, per Reuters.
• The Washington Post reported on Monday that Israeli Prime Minister Benjamin Netanyahu informed the United States (US) that Israel plans to focus on Iranian military targets rather than nuclear or Oil infrastructure.
• Federal Reserve (Fed) Bank of Minneapolis President Neel Kashkari reassured markets late on Monday by reaffirming the Fed's data-dependent approach. Kashkari reiterated familiar Fed policymaker views on the strength of the US economy, noting continued easing of inflationary pressures and a robust labor market, despite a recent uptick in the overall unemployment rate, per Reuters.

Technical Analysis: USD/INR holds position above 84.00, close to all-time highs

The USD/INR pair hovers around 84.00 on Wednesday. Analyzing the daily chart shows that the pair is testing the lower boundary of an ascending channel pattern. If it breaks below this channel, it could indicate a potential shift away from the current bullish sentiment. However, the 14-day Relative Strength Index (RSI) remains above the 50 level, which suggests that bullish momentum is still intact.

In terms of resistance, the USD/INR pair may encounter a barrier at its all-time high of 84.14, recorded on August 5. A breakthrough above this level could push the pair toward the upper boundary of the ascending channel, estimated at around 84.35.

On the downside, if the pair breaks below the immediate support at the psychological level of 84.00, it may target the nine-day Exponential Moving Average (EMA) at approximately 83.97.

USD/INR: Daily Chart