USD/INR flattens as investors await India's GST council meeting outcome

The Indian Rupee (INR) recovers early losses and turns flat around 88.20 against the US Dollar (USD) on Wednesday. The USD/INR pair is expected to trade sideways, with investors awaiting the outcome of the two-day Goods and Services Tax (GST) council meeting on Wednesday.

On the eve of independence on August 15, Indian Prime Minister Narendra Modi announced that the government will reveal new GST slabs to boost consumption around Deepawali, which will be celebrated on October 21.

According to a report from The Indian Express, the centre will abolish 12% and 28% slabs, and will shift these items into the remaining 5% and 18% tax brackets. Such a scenario will be inflationary for the Indian economy and may restrict the Reserve Bank of India (RBI) from reducing interest rates in the near term.

Meanwhile, India’s Trade Minister Piyush Goyal has expressed confidence, in his speech at an industry chamber event on Tuesday, that New Delhi will close a tariff deal with the United States (US). “We are in dialogue with the US for a bilateral trade deal,” Goyal said, The Economic Times reported. Goyal added that India is getting new trading arrangements with countries such as the European Union (EU), Chile, Peru, New Zealand, Australia, Oman and has already concluded deals with the EFTA bloc, UK, and UAE.

A slightly positive commentary from Indian Commerce Minister Goyal on trade deal with the US has come at a time when President Donald Trump has been criticizing New Delhi for doing “one-sided business” with Washington for a long time.

On Tuesday, US President Trump criticized India again while addressing reporters at the Oval Office. "We get along with India very well, but for many years, it was a one-sided relationship. India was charging us tremendous tariffs, the highest in the world,” Trump said, Hindustan Times reported.

Domestically, final HSBC Composite Purchasing Managers' Index (PMI) data for August has come in weaker than preliminary estimates. The Composte PMI dropped to 63.2 from the prior estimates of 65.2.

Daily digest market movers: US Dollar falls back on risk-off sentiment loses grip

• The Indian Rupee claws back early losses against the US Dollar as the safe-haven demand of the Greenback eases. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls back to near 98.20 after facing selling pressure around 98.60.
• The safe-haven demand US Dollar diminishes as rally in worldwide long-term bond yields hits pasue. Theoretically, a significant increase in long-term bond yields signifies mounting investors’ concerns over government debt. Rising government borrowing costs often lead to a decline in welfare spending, henceforth increasing the appeal of safe-haven bets.
• Meanwhile, investors shift their focus on the US JOLTS Job Openings data for July, which will be published at 14:00 GMT. The report is expected to show that US employers posted fresh 7.4 million jobs, almost in line with the prior reading of 7.44 million.
• This week, investors will also focus on the Nonfarm Payrolls (NFP) data for August, which will be released on Friday. Investors will pay close attention to the NFP data as the July report intensified market expectations in favor of interest rate cuts by the Federal Reserve (Fed) for the September meeting.
• According to the CME FedWatch tool, there is an almost 92% chance that the Fed will cut interest rates in the September policy meeting.
• On the political front, the verdict from the US appeals court against President Donald Trump’s tariffs, citing many of them as “illegal”, is expected to keep the US Dollar on its toes. A panel of judges ruled against Trump’s tariffs, stating that Trump wrongfully invoked emergency law. In response, US President Trump has announced that he will push the case to the Supreme Court for an expedited ruling on tariffs.

Technical Analysis: USD/INR trades flat above 88.00

The USD/INR pair broadly turns sideways after posting a fresh all-time high of around 88.50 on Monday. The near-term trend of the pair remains bullish as it holds above the 20-day Exponential Moving Average (EMA), which trades near 87.69.

The 14-day Relative Strength Index (RSI) stabilizes above 60.00, suggesting that a fresh bullish momentum has come into effect.

Looking down, the 20-day will act as key support for the major. On the upside, the pair has entered uncharted territory. The round figure of 89.00 would be the key hurdle for the pair.