- USD/INR pares the biggest daily loss in three weeks.
- India reports highest daily rise in covid infections since late February.
- Pullback in yields, DXY tests pair buyers, China data also exert downside pressure.
- Fed’s ability to tame inflation and recession fears will be at a test as markets expect aggressive action.
USD/INR stays defensive around 78.00, following a pullback from 78.27, as coronavirus woes in India jostle with the US dollar retreat ahead of the key Federal Open Market Committee (FOMC).
India reports an 8,822 daily rise in coronavirus infections, the highest since February 27, against 6,594 reported yesterday, per the latest NewsRise update shared by Reuters. It’s worth noting that the fears of economic slowdown and rallying inflation were cited in the latest Reserve Bank of India (RBI) monetary policy meeting. The same could intensify if virus cases escalate, which in turn suggests further pain for the Indian rupee (INR).
The fears of the faster/heavier Fed rate also keep the USD/INR buyers hopeful. As per the latest readings of the CME’s FedWatch Tool, there is 99% probability for a 75 bp rate increase during today’s meeting. Comments from the US diplomats, suggesting an indirect push to the Fed also seem to keep the USD/INR afloat. White House (WH) Economic Adviser Brian Deese and National Economic Council Deputy Director Bharat Ramamurti were among the US diplomats who highlighted the inflation woes and showed readiness to battle the same during their interviews with CNN and Bloomberg respectively.
Even so, the US Dollar Index (DXY) retreats from the highest level since 2002, down 0.20% intraday around 105.20, as the US Treasury yields ease from a multi-year top. That said, the US 10-year Treasury bond yields dropped 5.6 basis points (bps) to 3.43%. In doing so, the benchmark US bond coupons eased from the fresh high since 2011, marked the previous day.
It’s worth noting that softer US Producer Price Index (PPI) readings for May allowed the US bond coupons to retreat from the 11-year high and trigger a pullback in the US dollar ahead of the Fed meeting. That said, the US PPI matched 0.8% MoM forecasts, also easing to 10.8% YoY figures versus 10.9% expected and prior readouts. The PPI ex Food & Energy, known as Core PPI, dropped below 8.6% YoY forecasts to 8.3%.
Moving on, US Retail Sales for May, expected at 0.2% MoM versus 0.9% prior, could entertain USD/INR traders but major attention will be given to how Fed Chairman Jerome Powell manages to tame inflation and growth fears amid hopes of 75 bp moves versus previous signaled 50 bp rate lift.
Technical analysis
A one-week-old support line restricts immediate USD/INR downside, around 77.95, ahead of multiple tops marked since mid-May near 77.85. That said, buyers need to defy Monday’s Doji with successful trading above 78.40 to keep reins.
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