USD/INR Holds Steady Ahead of Fed Decision and India’s Interim Budget 2024

January 30, 2023

New Delhi, India

As the Federal Open Market Committee (FOMC) gears up for its policy meeting and India awaits its Interim Budget 2024, the USD/INR pair maintains a flat trajectory. This comes against the backdrop of a resilient Indian Rupee, emerging as the top-performing currency in the Asian markets for January 2024.

Indian Rupee’s Strong Performance:

The Indian Rupee trades with a mild positive bias, reclaiming ground against the US Dollar, propelled by foreign portfolio inflows. A finance ministry review affirms the Indian economy’s resilience, citing robust domestic demand, investment-led strategies, and macroeconomic stability.

Economic Outlook and Challenges: The Finance Ministry projects India to become the world’s third-largest economy, eyeing a $5 trillion GDP over the next three years. However, external risks from global challenges, including inflation, sluggish growth, and fiscal pressures, coupled with tensions in the Red Sea, pose potential threats.

Key Events on the Horizon: Investors are closely monitoring the FOMC’s January meeting, expected to maintain key interest rates. Attention then shifts to India’s Interim Budget 2024, set to unveil fiscal plans for 2024–25.

Market Highlights:

• Indian Rupee’s January performance: Top-performing Asian currency, appreciating by 1% to 2%.
• India’s GDP growth: Estimated at $3.7 trillion as of January 29, showing substantial growth over the past decade.
• RBI’s Role: The stability of INR attributed to timely interventions by the Reserve Bank of India in the FX market.

Fiscal Budget and Economic Plans:

• India’s Fiscal Budget 2024–25 aims to lower the fiscal deficit to 5.30% from 5.90% in the current fiscal year.
• Government plans include boosting welfare spending and reducing the budget deficit to 4.5% of GDP by fiscal year 2025–26.

Global Economic Indicators:

• US Dallas Fed Manufacturing Business Index for January at -27.4, its lowest level since May.
• Core PCE for December shows a 0.2% MoM growth, with an annual increase of 2.9% YoY.
• Trader Sentiment: CME Group’s FedWatch tool indicates a shift, with 42% anticipating a 25 bps rate cut by the US Federal Reserve in March.

Technical Analysis and Outlook: The USD/INR pair remains within a descending trend channel, with potential upside indicated by its position above the 100-period EMA. However, the RSI at the midline suggests a lack of clear direction. Key levels to watch include 83.25 as an upside barrier and the 83.00–83.05 zone as potential downside support.

In conclusion, the USD/INR pair navigates key economic events, with the Indian Rupee’s stability drawing attention amidst global uncertainties.