USD/INR: Below 21-day SMA, looks to RBI for immediate direction

With the US Dollar (USD) extending its across the board weakness, USD/INR drops to 70.85 ahead of the RBI decision, scheduled just before the European session open on Friday.

The greenback fails to recover amid growing speculations of an upcoming recession in the United States (US) considering latest downbeat activity numbers, not to forget pessimistic signals from the forward-looking indicators.

It should also be noted that the market’s cautious mood, as indicated by the US bond yields and Asian stocks, also contributed to the pair’s latest declines.

The Reserve Bank of India (RBI) is expected to announce the fifth consecutive rate cut, worth of 25 basis points (bps) this time, in order to amplify the government’s latest stimulus measures. However, the Indian central bank is less likely to alter its economic forecasts.

“We think the RBI will cut policy rates by 25bps in the wake of weaker and still below potential growth and well behaved inflation pressures. At the last meeting held during August 5-7 the RBI cut rates by a bigger than expected 35bp to 5.40% while maintaining an accommodative policy stance, leaving the door open to further cuts. Following the government's recent announcement of corporate tax cuts we expect the RBI to complement this with further, albeit less aggressive easing at this meeting, says TD Securities ahead of the event.

Following the release, markets will keep eyes on the September month employment data from the US and the US Federal Reserve (Fed) Chairman Jerome Powell’s speech at the “Fed Listens” event.

Technical Analysis

Unless breaking 100/200-day simple moving average (SMA) confluence around 70.15/17, odds of its drop to late-July tops nearing 69.35/40 seem lighter, which in turn rises the expectations of pair’s run-up to 72.65 if it manages to break one-month-old falling trend-line, at 72.00 now.