USD/INR softens ahead of US Retail Sales, PPI releases

• Indian Rupee posts modest gains in Thursday's Asian session.
• Optimism from the US-China trade deal underpins the US Dollar and drags the INR lower. 
• Traders brace for the US April Retail Sales and PPI data, due later on Thursday.

The Indian Rupee (INR) strengthens on Thursday. The de-escalation of a trade war between the United States (US) and China, along with the fall in Crude oil prices and the weakness of the US Dollar (USD), provides some support to the Indian currency. 

However, the cooler-than-expected India's retail inflation, which dropped to its lowest level since July 2019, might exert some selling pressure on the INR, as it could give the Reserve Bank of India (RBI) another chance to cut rates next month in its scheduled meeting. 

Looking ahead, traders await the release of top-tier US economic data due later on Thursday, including Retail Sales and Producer Price Index (PPI) for April. The Federal Reserve (Fed) Chair Jerome Powell is scheduled to speak later on the same day. 

Indian Rupee remains firm despite softer retail inflation report

• India's Wholesale Price Inflation (WPI) fell to a 13-month low of 0.85% in April from 2.05% in March, according to the Commerce and Industry Ministry on Wednesday. This figure came in below the market consensus of 1.76%. 
• "Positive rate of inflation in April, 2025 is primarily due to an increase in prices of manufacture of food products, other manufacturing, chemicals and chemical products, manufacture of other transport equipment, and manufacture of machinery and equipment, etc," noted the Industry Ministry.
• San Francisco Fed President Mary Daly said late Wednesday that the strength of the US economy allows policymakers to be patient as they wait for more evidence of how Trump's policies will affect businesses and households. 
• Markets have dialed back expectations for rate cuts from the Fed this year, pricing in a 74% chance of the first cut of at least 25 basis points (bps) at the September meeting, according to LSEG data, compared with the prior view for a cut in July.

USD/INR retains a bearish bias in the longer term

The Indian Rupee trades stronger on the day. The bearish tone of the USD/INR pair remains in place, with the price holding below the key 100-day Exponential Moving Average (EMA) on the daily chart. Nonetheless, further consolidation or temporary recovery cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline, indicating neutral momentum in the near term. 

The first downside target for USD/INR is seen at 84.95, the low of April 28. Any follow-through selling below the mentioned level could see a slide toward 84.61, the low of May 12. The next contention level to watch is 84.12, the low of May 5.

On the other hand, the immediate resistance level for the pair is located at 85.60, the 100-day EMA. A break above this level might even spark a run toward the 86.00-86.05 zone, which marks both a round figure and the upper boundary of the trend channel.