USD/INR surges as investors turn cautious ahead of Fed Powell’s speech

The Indian Rupee (INR) slumps against the US Dollar (USD) on Friday. The USD/INR pair rises to near 87.70 as the US Dollar demonstrates strength ahead of Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole (JH) Symposium at 14:00 GMT.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh 10-day high around 98.80.

Market experts believe that Fed Chair Powell will reiterate a “wait and see” approach on the monetary policy outlook for the September policy meeting and the remainder of the year. “The most likely scenario is that Powell won’t provide any definitive clues on what the Fed will do next ahead of critical Nonfarm Payrolls (NFP) and Consumer Price Index (CPI) data,” analysts at Commonwealth Bank Australia said.

The Federal Open Market Committee (FOMC) minutes of the July policy meeting, released on Wednesday, also stated that members, including Jerome Powell, need time to gain absolute clarity on the “magnitude and persistence of higher tariffs’ effects on inflation”.

According to the CME FedWatch tool, there is an almost 75% chance that the Fed will cut interest rates by 25 basis points (bps) to 4.00%-4.25% in the September meeting. Traders have pared some Fed dovish bets this week, but ramped up significantly after the NFP report for July showed significant downward revisions in May and June data.

Daily digest market movers: Indian Rupee declines against US Dollar, Nifty50 slides sharply

• Investors brace a cautious performance by the Indian Rupee ahead of scheduled Fed Powell’s speech at the Jackson Hole Symposium. On the domestic front, strong flash India’s HSCB Purchasing Managers’ Index (PMI) data for August has failed to support the Indian currency.
• The report showed on Thursday that the Composite PMI expanded to 65.2 from 61.1 in July due to strong business activity in both services and the manufacturing sector. The Services flash PMI touched an all-time high of 65.6, led by a sharp pickup in new business orders, both export and domestic.
• The PMI report also showed that expectations of business owners have improved strongly on the month and were most optimistic since March. Financial market participants are of the view that business sentiment would improve further as Indian Prime Minister Narendra Modi has promised to announce Goods and Services Tax (GST) reforms near Diwali in late October to boost domestic consumption.
• On Wednesday, a report from NDTV showed that India’s Finance Minister Nirmala Sitharaman also addressed the three Groups of Ministers set up by the GST Council to emphasise the importance of the Centre’s proposed reforms to the GST system, including the rate rationalisation efforts.
• Economists expect GST reforms to be inflationary for the economy and will restrict the Reserve Bank of India (RBI) from reducing interest rates aggressively. This year, the RBI has already reduced its Repo Rate by 100 basis points (bps) to 5.5%.
• Following the announcement of GST reforms, there has been an observed improvement in the position of overseas investors in the Indian stock market. So far this week, Foreign Institutional Investors (FIIs) have emerged as net buyers in the Indian equity markets. FIIs have invested a nominal amount of Rs. 63.11 crores in the August 18-21 period after remaining net sellers for over six weeks. A slowdown in FIIs' selling suggests that the sentiment of overseas investors towards Indian equity markets is improving.
• Meanwhile, Indian stock markets are facing a sharp sell-off in Friday's session. Nifty50 is down 0.8% below 24,900. Sensex30 shrugs off 600 points and slides below 81,400.

Technical Analysis: USD/INR recovers to near 87.70

USD/INR bounces back strongly from the three-week low around 87.00 and returns above the 20-day Exponential Moving Average (EMA), which is near 87.35.

The 14-day Relative Strength Index (RSI) rebounds from 50.00. A fresh bullish momentum would emerge if the RSI breaks above the 60.00 level.

Looking down, the July 28 low around 86.55 will act as key support for the major. On the upside, the August 11 high around 87.90 will be a critical hurdle for the pair.