USD/INR extends sideways trend as RBI continues to lend support to Indian Rupee

The Indian Rupee (INR) remains inside the two-week-long range of 88.76-89.11 against the US Dollar (USD) on Thursday. The struggle for the USD/INR pair to extend its upside above the all-time high of 89.11 continues as the Reserve Bank of India (RBI) keeps intervening in currency markets to defend the Indian Rupee.

The Indian currency has been trading in a narrow range near all-time lows, with the RBI’s persistent dollar sales helping to anchor volatility. Bankers expect the central bank to continue smoothing moves, Reuters reported.

However, investors brace for significant volatility in the Indian Rupee when the RBI rolls back its support.

The Indian Rupee has remained on the back foot as the competitiveness of Indian products in global markets diminished due to higher tariffs on imports from India to the United States (US). Washington is charging a 50% import duty on products from New Delhi as a penalty for buying oil from Russia.

Meanwhile, Commerce and Industry Minister Piyush Goyal expressed confidence, while responding to reporters on Tuesday during his visit to Qatar, that his team is in constant dialogue with negotiators from Washington and both nations would reach a trade agreement within the November deadline, as reported by ANI News. Goyal added that the next round of trade talks has not been scheduled yet as the US government is in a shutdown mode.

On the foreign investment flow front, overseas investors turned out to be net buyers in the Indian stock market for the second consecutive day on Wednesday. However, the size of investment was small as Foreign Institutional Investors (FIIs) pumped Rs. 81.28 crores into the Indian equity markets.

Daily digest market movers: US Dollar will be influenced by Fed Powell's speech

• The USD/INR pair remains in a tight range, even as the US Dollar has clawed back its early losses. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, recovers its intraday losses and revisits the two-month high of 99.00 posted on Wednesday. The USD Index is performing strongly as its safe-haven demand has increased, following recent political developments in Japan and France.
• The US Dollar faced a slight selling pressure as dovish Federal Open Market Committee (FOMC) minutes from the September policy meeting and the ongoing US government shutdown are a major drag.
• The FOMC minutes showed on Wednesday that a majority of members signaled that it is appropriate for the Fed to pivot to neutral rates as “downside risks to employment to have increased, while upside risks to inflation had either diminished or not increased”. The minutes also showed that almost all participants voted for a 25 basis points (bps) interest rate reduction, while one favoured a bigger size cut.
• According to the CME FedWatch tool, traders remain extremely confident that the Fed will cut interest rates again at the policy meeting later this month, with a 78.6% chance of another rate cut in the December meeting.
• For more cues on the US interest rate outlook, investors await the speech from Fed Chair Jerome Powell at the Community Bank Conference in Washington, which is scheduled for 12:30 GMT.
• Meanwhile, the ongoing US government shutdown is weighing on the economic outlook amid fears that the White House would be forced to cut programs and announce layoffs in federal agencies. On Tuesday, US President Donald Trump announced that the White House could eliminate a string of government programs amid the ongoing government shutdown and would provide details on lay-offs in the next four to five days.
• Going forward, investors will focus on the preliminary Michigan Consumer Sentiment Index and Consumer Inflation Expectations data for October, which is scheduled for Friday.

Technical Analysis: USD/INR continues sideways trend around 89.00

USD/INR continues to trade in a tight range between 88.76 and 89.11 for over two weeks. The near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) continues to slope higher around 88.67.

The 14-day Relative Strength Index (RSI) stays above 60.00, suggesting a strong bullish momentum.

Looking down, the pair could slide to near the September 12 high of 88.57 and the 20-day EMA, if it breaks below the September 25 low of 88.76.

On the upside, the pair could extend its rally towards the round figure of 90.00 if it breaks above the current all-time high of 89.12.