USD/INR eases from multi week tops near 72, looks to finish the day modestly higher

• USD/INR rises on broad-based USD strength on Monday.
• Federal fiscal deficit in India declines in December.
• RBI is scheduled to announce its interest rate decision on Thursday.

The USD/INR pair gained traction on Monday and advanced to its highest level since mid-December at 71.91 before correcting a small part of its daily upsurge. As of writing, the pair was up 0.35% on the day at 71.72.

Although the data from India earlier today showed that the federal fiscal deficit declined slightly in December, markets remained focused on the USD and made it difficult for the INR to grab investors' attention. 

After posting small gains on Friday, the US Dollar Index started the new week on a strong note and continued to reverse the losses it suffered following the dovish shift in the FOMC's tone last Wednesday. The impressive growth in the nonfarm payrolls and strong manufacturing PMI data from the U.S. helped the buck gather strength. The DXY inched closed to the 96 handle today and was last up 0.25% on the day at 95.84.

On the other hand, the INR could continue to have a tough time finding demand ahead of this week's RBI meeting. Previewing the event, "At the Reserve Bank of India’s sixth bi-monthly monetary policy meeting for 2018-19 scheduled for Thursday 7th February we expect the RBI to keep its repo rate unchanged at 6.50% but change its stance to “neutral” from “calibrated tightening”. While there is a non-insignificant risk of a rate cut under new governor Das, we think it may be premature for the RBI to ease at this time," said TD Securities analysts in a recently published report. 

Furthermore, TD Securities analysts also note that the INR is one of the worst performing EM currencies against the USD so far in 2019 amid concerns over fiscal slippage ahead of the elections. On the same note, "The policies of the Gujarati-born PM trigger some negative reactions from investors who worry about slippages in the budget and weigh on the Indian rupee. The so-called "Modinomics" that economists liked may be turning against the rupee," argued FXStreet Analyst Yohay Elam.

• USD/INR Forecast: 3 reasons for the fall of the Rupee, levels to watch.

Technical outlook

USD/INR Technical Analysis: Bullish while above 71.50, looking at 72.00.