Will USD/INR Dips Remain Shallow?

USD/INR sits around 79.65 presently, note the 50-day MA comes in at 79.58 today. Dips below this MA level have been supported back to early April of this year. We aren't too far away from the 80.00 level though, which clearly represents somewhat of a line in the sand for the Indian authorities.

• Today's data outcomes are unlikely to do the rupee many favors.
• CPI for August is expected to print at 6.90% y/y, versus 6.71% last month. Base effects are one driver, although higher onshore food prices/taxes are another factor as well.
• IP growth, for July, is expected to ease back to 4.2% y/y from 12.3% y/y. Base effects are working in the opposite direction for this print, while weaker export growth is also expected to be a headwind.
• The CPI print will carry more weight from an RBI outlook standpoint, note the next RBI meeting is on September 30th.
• The rupee is still lagging softer USD sentiment and lower energy prices. RBI's FX reserves continue to fall, headline down to $553bn in early September from $630bn in March.
• August trade figures only showed a modest improvement in the deficit to $28.7bn from around $30bn in July as well.
• Even if we see a meaningful improvement in India's terms of trade, the RBI may use any USD/INR pullbacks as an opportunity to replenish FX reserves. This in turn could keep USD/INR dips relatively shallow, or least INR as an underperformer compared to the rest of the region.