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US Dollar, Rupee and Nifty 50 Outlook After Trade Deal, Indian CPI

US Dollar, Rupee and Nifty 50 Outlook After Trade Deal, Indian CPI

Daniel Dubrovsky, Strategist

Indian Rupee, USD/INR, RBI, Nifty 50 - Talking Points

  • Indian headline CPI unexpectedly soared, core measures more restrained
  • Indian Rupee and Nifty 50 may gain as US-China avoid tariff escalation
  • USD/INR may confirm Double Top and pave the way for a trend reversal

Indian Rupee Continues Rise After Indian CPI Surprised Higher

The Indian Rupee has rallied against the US Dollar on US-China trade deal bets and after the Reserve Bank of India unexpectedly left rates unchanged last week. Policymakers raised their outlook for inflation next year and yesterday’s local CPI data appeared to support their outlook. Headline price growth clocked in at 5.54 percent y/y in November, much higher than the 5.30% estimate and up from the 4.62% outcome in October.

That marked the fastest pace of Indian CPI since July 2016 and it was primarily driven by rising food costs. The latter increased about 10 percent y/y, up from the 7.89% outcome in October. This was primarily due to a shortage in onions which are a key ingredient in local cuisine. Core measures of inflation, which strip out food and fuel costs, barely budged from last month and have been on the decline since 2018 – see chart below.

US Dollar, Rupee and Nifty 50 Outlook After Trade Deal, Indian CPI

This is as industrial production contracted -3.8% y/y in October which was softer than the -5.0% estimate and up from the -4.3% outcome in September. These are still levels buoyant enough that they were last matched in October 2011, a little over 8 years ago. Overall, India’s economy still faces major challenges in the year ahead. A wobbly banking sector has resulted in both fiscal and monetary stimulus this year.

If Indian growth continues its slowing trend, the RBI could run into trouble as CPI approaches the 6% upper tolerance limit. Ebbing regional demand is underpinned by the weakening pace of core inflation. While the Indian Rupee has been rallying up a storm, and may continue to do so after the US and China avoided further tariff escalation for now, underlying fundamental pressure may come back to reinstate selling bets in INR.

For updates on the Indian Rupee and USD/INR, you may follow me on Twitter here @ddubrovskyFX

Indian Rupee Technical Outlook

USD/INR has confirmed the break under a key rising support line from July – blue line on the chart below. Prices are sitting on the key psychological barrier between 70.35 and 70.54. Moreover, the Rupee could be on the verge of confirming a Double Top which is a bearish chart pattern. The two peaks of the formation occurred in August and November. A temporary pullback occurred in-between the tops.

A daily close under 70.35 with confirmation after the Double Top could signify that a reversal of trend is at hand. That may eventually pave the way to retest points last seen in July. Along the way stands near-term support at 69.97. Otherwise, a bounce on the October lows could invalidate this bearish technical setup and place the focus on immediate resistance at 71.23.

USD/INR Daily Chart

US Dollar, Rupee and Nifty 50 Outlook After Trade Deal, Indian CPI

USD/INR Chart Created in TradingView

Nifty 50 Technical Analysis

The Nifty 50 may see some upward momentum amid the US-China trade deal which is inducing a “risk-on” tilt in financial markets. That could pave the way for a retest of the November peak at 12158. A daily close above then exposes the 38.20 percent Fibonacci extension at 12158. Turning lower has immediate support as the psychological barrier between 11802 and 11843.

Nifty 50 – Daily Chart

US Dollar, Rupee and Nifty 50 Outlook After Trade Deal, Indian CPI

Nifty Chart Created in TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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