USD/INR extends its downside ahead of US NFP data

• Indian Rupee extends the rally amid the decline in USD and the release of the India Budget 2024. 
• India’s Finance Minister said the government will boost spending on infrastructure projects, build homes for poor villagers, and lower the fiscal deficit.
• Market players will closely watch the January US Nonfarm Payrolls, due on Friday. 

Indian Rupee (INR) trades in positive territory for the third consecutive day on Friday. The announcement of the India Budget 2024 by Finance Minister Nirmala Sitharaman provides some support to the INR. Minister Sitharaman said in her budget statement on Thursday that the government will focus on more comprehensive governance, development, and performance. Four groups that will be the priority for the government are the poor, women, youth, and farmers.

Sitharaman also remarked that the government has continued to fund infrastructure building, which has been an important driver of India’s economic growth. The budget for physical asset construction, such as roads and ports, has increased by 11% to more than $130 billion this year. Furthermore, the government plans to build an additional 20 million affordable houses over the next five years, in addition to the nearly 30 million houses already built.

Investors will closely monitor the January US labor market data on Friday, including Nonfarm Payrolls, Unemployment Rate, and Average Hourly Earnings. The US economy is estimated to see 185K job additions in January. The Unemployment Rate is expected to tick up to 3.8%, while the Average Hourly Earnings are projected to show an increase of 0.3% MoM.

Daily Digest Market Movers: Indian Rupee remains resilient in the face of global headwinds

• The Indian government will spend a record 11.11 trillion Rupees (approximately $134 billion) on infrastructure development.
• The allocation for capital expenditure for the fiscal year beginning April 1 is 11.1% more than the capex for the current fiscal year, Finance Minister Nirmala Sitharaman said in her budget statement on Thursday.
• The federal government’s capital spending as a percentage of GDP increased to 3.3% in 2023/24 and is estimated at 3.4% in the next fiscal year.
• The FY24 fiscal deficit is seen at 5.8% of GDP.
• The Indian government aims to lower the fiscal deficit to below 4.5% by FY26.
• Indian S&P Global Manufacturing PMI improved to 56.5 in January from the previous reading of 54.9.
• The International Monetary Fund (IMF) has raised its growth projection for India, expecting the economy to grow by 6.7% in the fiscal year 2024, compared with the 6.3% forecast earlier.
• The US ISM Manufacturing PMI grew to 49.1 in January from the previous reading of 47.1, the highest since October 2022. This figure came in better than the market expectation of 47.0. 
• The New Orders index rose into expansionary territory at 52.5, the Production Index grew to 50.4, and the Price Index climbed to 52.9.
• According to the CME FedWatch Tool, traders have priced in 96% odds of a rate cut in May.
• The Federal Open Market Committee (FOMC) maintained the benchmark Federal Funds Rate unchanged at 5.25–5.50%, as widely expected.
• Fed Chair Jerome Powell stated that the Fed won’t begin lowering the target range until it sees further progress on inflation moving sustainably toward the 2% target.

Technical Analysis: Indian Rupee extends the range play between 82.78 and 83.45

Indian Rupee continues to trade on a stronger note on the day. The USD/INR pair remains stuck within a two-month-old descending trend channel of 82.78–83.45. Technically, USD/INR keeps the bearish vibe as the pair decisively breaks below the key 100-period Exponential Moving Average (EMA) on the daily chart. The downward momentum is confirmed by the 14-day Relative Strength Index (RSI), which stands below the 50.0 midline and, is likely to attract some selling pressure. 

The potential support level for the pair will emerge at the lower limit of the descending trend channel at 82.72. A bearish breakout below 82.72 might signal that it’s time for the bear to charge again, possibly taking the pair back to a low of August 23 at 82.45, followed by a low of June 1 at 82.25. 

On the bright side, a break above the support-turned-resistance level of 83.00 will see a rally to the upper boundary of the descending trend channel and a high of January 20 at 83.20. Any follow-through buying could extend its upswing to a high of January 2 at 83.35.