USD/INR flat-lines ahead of Fed rate decision, India’s Interim Budget 2024

• Indian Rupee trades around a flat line amid a modest decline in the US Dollar.
• The Indian Rupee took the lead to become the top-performing currency in the Asian markets for January 2024.
• The Federal Open Market Committee's (FOMC) policy meeting and India’s Interim Budget 2024 are the highlights for this week.

Indian Rupee (INR) trades flat with a mild positive bias on Tuesday. The Indian Rupee regains its ground against the US Dollar on the back of foreign portfolio inflows, becoming the top-performing currency in the Asian markets for January 2024. According to a review by a finance ministry, the Indian economy remains resilient amid global challenges due to robust domestic demand, investment-led strategies, and macroeconomic stability.

The Finance Ministry stated that India is on track to become the world's third-largest economy, with a projected Gross Domestic Product (GDP) of $5 trillion over the next three years. Nonetheless, the external risks from sticky inflation, sluggish growth, and fiscal pressures in the global economy, combined with the ongoing tension around the Red Sea could be a potential threat.

Moving on, investors will closely monitor the Federal Open Market Committee (FOMC) January meeting on Wednesday, which is widely expected to keep its key interest rates steady for the fourth time in a row. The attention will shift to India’s Interim Budget 2024 for fiscal year 2024–25 on Thursday.

Daily Digest Market Movers: Indian Rupee remains resilient to global headwinds and uncertainties

• The Indian Rupee becomes the top-performing currency in the Asian markets for January 2024, appreciated by 1% to 2%.
• As of January 29, India’s GDP was estimated to be $3.7 trillion, marking significant growth from its position as the tenth biggest economy a decade ago, with a GDP of $1.9 trillion.
• The stability of INR was attributed to the Reserve Bank of India’s (RBI) timely intervention in the FX market, both by selling and buying Dollars.
• India's Fiscal Budget 2024–25 is anticipated to lower the fiscal deficit as a percentage of GDP to 5.30% in 2024–25 from 5.90% in the current fiscal year.
• The Indian government plans to boost welfare spending and lower the budget deficit to 4.5% of GDP by fiscal year 2025–26.
• US Dallas Fed Manufacturing Business Index for January came in at -27.4 versus -10.4 prior, its lowest level since May.
• The US Core Personal Consumption Expenditures Price Index (Core PCE) for December, the Fed’s favorite inflation gauge, grew by 0.2% MoM from 0.1% in the previous reading.
• On an annual basis, the Core PCE figure increased by 2.9% YoY from the previous reading of 3.2%.
• According to CME Group's FedWatch tool, the sentiment among traders has evolved, with 42% now anticipating a 25 basis points (bps) rate cut by the US Federal Reserve in March.

Technical Analysis: Indian Rupee continues to consolidate in the 82.78 and 83.45 band

Indian Rupee trades on a flat note on the day. The USD/INR pair remains confined in a two-month-old descending trend channel between 82.78 and 83.45. According to the daily chart, the potential upside of USD/INR looks favorable as the pair is above the key 100-period Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) hovers around the 50.0 midline, indicating the directionlessness of the pair.

The upper boundary of the descending trend channel at 83.25 acts as the first upside barrier for the pair. A decisive break above 83.25 could put a trip back to a high of January 2 at 83.35, followed by a 2023 high of 83.47. On the downside, a clear breakout below the confluence of the 100-period EMA and a psychological level at the 83.00–83.05 zone will put a move to a low of December 18 at 82.90 on the table. Any follow-through selling will drag USD/INR lower to the lower limit of the descending trend channel at 82.72.