Indian Rupee bounces back as India’s retail inflation grew faster in August

• The Indian Rupee rebounds against the US Dollar to near 88.40 as India’s CPI grew at a faster pace in August.
• US Commerce Secretary Lutnick said that a trade deal with India would likely be reached if it stops buying Russian Oil.
• US Initial Jobless Claims for the week ending September 5 came in at their highest in four years at 263K.

The Indian Rupee recovers early losses and ticks up to near 88.40 against the US Dollar (USD) on Friday. The USD/INR pair faces slight selling pressure as the Indian Rupee attracts bids after the release of India’s Consumer Price Index (CPI) data for August. The CPI report showed that retail inflation grew at an annual pace of 2.07%, almost in line with estimates of 2.1%, but higher than the prior reading of 1.55%.

Rising inflationary pressures are likely to force traders to pare bets supporting more interest rate cuts by the Reserve Bank of India (RBI) in the remainder of the year, a scenario that will be favorable for the Indian Rupee.

However, the outlook of the Indian currency remains uncertain as trade tensions between the United States (US) and India continue to linger, even as Washington and New Delhi have confirmed that trade negotiations between both nations are still going on. They strive to reach an agreement sooner.

Since the announcement of the 90-day grace period by the US for its trading partners to close a trade agreement before the imposition of reciprocal tariffs, Washington mentioned that India could have been the first nation with which it would have closed a deal. However, the deal got postponed due to war tensions between India and Pakistan. And, now India is the nation facing the highest tariffs by the US for buying Oil from Russia.

The comments from US Commerce Secretary Howard Lutnick, in an interview with CNBC on Thursday, have signaled that Washington is ready to deal with India if it stops buying Russian Oil. “Well, we’re going to sort out India once it stops buying Russian oil,” Lutnick said, Reuters reported.

Additionally, a report from the Financial Times (FT) has indicated that the US will pressure G7 countries to impose higher tariffs on India and China for buying Russian oil.

In response, Foreign Institutional Investors (FIIs) continue to pare stake in Indian stock markets. On Thursday, FIIs sold Rs. 3,472.37 crores worth of shares from the cash segment of Indian equity markets.

Daily digest market movers: The Fed is certain to cut interest rates next week

• The USD/INR pair edges lower as the US Dollar trades cautiously due to weakening US labor market conditions. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades with caution near Thursday’s low of 97.60.
• The US Dollar declined on Thursday after the US Department of Labor reported a sharp increase in the number of individuals filing for jobless claims for the first time. Initial Jobless Claims for the week ending September 5 came in higher at 263K, the highest reading seen in four years. Economists expect the data to come in at 235K, almost in line with the prior reading of 236K.
• Weakening US labor market conditions had already bolstered market speculation that the Federal Reserve (Fed) will cut interest rates in its policy meeting next week. According to the CME FedWatch tool, traders see a 7.5% chance that the Fed will cut interest rates by 50 basis points (bps) to 3.75%-4.00% on September 17, while the rest point a standard 25-bps interest rate reduction.
• Meanwhile, inflationary pressures in the US economy have accelerated as producers continue to shift the tariff effect to consumers. As measured by the CPI, the US headline inflation rose at an annual pace of 2.9% in August, as expected, faster than the prior reading of 2.7%. On a monthly basis, the headline CPI grew at a faster pace of 0.4% against estimates of 0.3% and the prior reading of 0.2%.
• Rising inflationary pressures and weakening job growth have prompted the risk of stagflation in the US economy, a scenario that would force Fed officials to maintain a delicate balancing act in the policy meeting next week.
• In Friday’s session, investors will focus on the preliminary Michigan Consumer Sentiment Index (CSI) data for September, which will be published at 14:00 GMT. The sentiment index is expected to come in slightly lower at 58.0 from 58.2 in August.

Technical Analysis: USD/INR stays above 20-day EMA

The USD/INR pair faces slight selling pressure and drops to near 88.40 on Friday. Still, it is close to its all-time high of 88.60 posted on Thursday. The near-term trend of the pair remains bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades near 88.00.

The downside move in the 14-day Relative Strength Index (RSI) rebounds from 60.00, suggesting that a fresh bullish momentum has emerged.

Looking down, the 20-day will act as key support for the major. On the upside, the round figure of 89.00 would be the key hurdle for the pair.