USD/INR edges lower amid softer US Dollar, India’s foreign inflow hopes

• The Indian Rupee drifts higher on the weaker US Dollar on Tuesday. 
• India’s inflows might lift the INR, while the weakness in major Asian peers, higher oil prices might cap the upside. 
• Traders await US Chicago Fed National Activity Index, Consumer Confidence and the speech from Fed’s Cook and Bowman on Tuesday. 

The Indian Rupee (INR) gains traction on Tuesday, supported by the softer US Dollar (USD) across the board. The significant inflows related to the inclusion of Indian bonds in the JPMorgan emerging market debt index could support the INR. However, the upside of the Indian Rupee might be limited by a decline in major Asian currencies like the Chinese Yuan and the Japanese Yen. Additionally, the rise in crude oil prices amid the hope for strong summer driving demand could weigh on the INR as India is the world’s third-largest oil consumer after the United States (US) and China. 

The US Chicago Fed National Activity Index for May and Consumer Confidence will be released on Tuesday. Also, the Fed’s Lisa Cook and Michelle Bowman are set to speak. Investors will shift their attention to the key US economic data later this week. The final reading of US Gross Domestic Product (GDP) for the first quarter (Q1) is due on Thursday, and the Personal Consumption Expenditure (PCE) Price Index for May will be published on Friday. 

Daily Digest Market Movers: Indian Rupee remains firm, supported by optimistic economic outlook

• The S&P Global Ratings retained its growth forecast for India at 6.8% for FY25, citing high interest rates and government spending boosting demand in the non-agricultural sectors.
• India is expected to become a $4 trillion economy in 2025, surpassing Japan by early next fiscal year to become the world’s fourth largest economy, according to Indian Economic Advisory Council to the Prime Minister (EAC-PM) member Sanjeev Sanyal.
• San Francisco Fed President Mary Daly said that the Fed must continue the work of fully restoring price stability without a painful disruption to the economy. Daly added that while the central bank still has “more work to do” on bringing inflation down, inflation is not the only risk they face.
• The final reading of the US headline and Core Personal Consumption Expenditures (PCE) Price Index is estimated to show a rise of 2.6% on a yearly basis in May.
• The financial markets have priced in a 66% probability of a Fed rate cut in September, increasing from 59.5% at the end of last week, according to the CME FedWatch Tool.

Technical analysis: USD/INR might see further consolidation in the near term

The Indian Rupee trades firmly on Tuesday. The USD/INR pair maintains the constructive picture on the daily chart beyond the key 100-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) hovers around the 50-midline, indicating that further consolidation in the near term looks favorable. 

A move to the all-time high of 83.75 would increase the possibility of an upleg to the 84.00 psychological level. Further gains to 84.50 are also on the table if USD/INR gains bullish momentum beyond the mentioned level. 

On the downside, extended losses may extend its downswing to the potential support level at the 83.30-83.35 region, representing the confluence of the resistance-turned-support level and the 100-day EMA. Further south, the next downside barrier is located at the 83.00 round figure.