USD/INR Price News: Indian Rupee regains 82.60 on RBI’s 0.25% rate hike, US Dollar pullback

• USD/INR retreats from five-week high following RBI Interest Rate Decision.
• RBI announces 0.25% lift to the benchmark Repo Rate, matches market forecasts.
• US Dollar pullback, softer yields adds strength to the Indian Rupee rebound.
• Risk catalysts, technical patterns suggest further downside amid a light calendar.

USD/INR bears cheer the Reserve Bank of India’s (RBI) interest rate announcements by renewing the intraday low near 82.60 early Wednesday. In doing so, the Indian Rupee (INR) pair also cheers the broad US Dollar weakness and a pullback in the Oil price.

RBI matches market forecasts by announcing 25 basis points (bps) rate hike. Following the interest rate announcement, RBI Chief Shaktikanta Das said, “While inflation expected to moderate in Fiscal Year 2023-24 (FY24), will rule above the 4% target.” The Indian central bank Governor also defied the market's previous expectatinos of a dovish hike by suggesting the need for higher rates, as well as confirming the read Gross Domestic Product (GDP) growth rate of 6.4% ,which in turn favored INR.

Apart from the RBI rate hike, a broad weakness in the US Dollar also weighs on the USD/INR prices of late. That said, the US Dollar Index (DXY) remains sluggish near 103.30, after reversing from a one-month high the previous day. In doing so, the greenback’s gauge versus the six major currencies traces softer US Treasury bond yields while justifying unimpressive comments from US President Joe Biden and Federal Reserve (Fed) officials.

US President Biden delivered his State of the Union (SOTU) speech in the first joint session of Congress since Republicans took control of the House of Representatives in January. During the SOTU, US President Biden showed readiness to work with them for the betterment of America. The policymaker also pushed for the billionaire minimum tax while trying to show a tough stand on China if the dragon nation undermines the US sovereignty.

That said, US President Biden previously tried to placate fears of another round of Sino-American tussles by saying, “The balloon incident does not weaken US-China relations.” However, China’s rejection of the Pentagon’s request keeps the geopolitical tension high and teases US Dollar buyers. “China has declined a US request for a phone call between US Defense Secretary Lloyd Austin and Chinese Defense Minister Wei Fenghe,” a Pentagon spokesman said on Tuesday reported Reuters.

On the other hand, Minneapolis Federal Reserve (Fed) President Neel Kashkari told CNN, "We may have to hold rates at a higher level for longer," while adding that he is not forecasting a recession. Following that, Federal Reserve Chairman Jerome Powell said, “Expect 2023 to be a year of significant declines in inflation,” while also adding that if data were to continue to come in stronger than expected, would certainly raise rates more.

It should be noted that Fed’s Powell showed hesitance in praising the latest jump in the US Nonfarm Payrolls (NFP) during the appearance on Tuesday when asked about the job growth being a likely force behind the Fed's aggressive rate hikes. The same suggests a pause in the Fed rate after currently priced-in two rate hikes worth 0.25%.

Elsewhere, a pullback in the WTI crude oil price from $77.60 to $77.30 by the press time adds strength to the USD/INR pullback due to India’s reliance on energy imports. However, the Adani-led India stock rout and foreign fund outflow seem to join the strong US jobs report to keep USD/INR buyers hopeful. On the same line could be the Indian government’s push for deficit-cutting measures in the latest Union Budget, which in turn raises doubts about the nation’s future growth capacity.

Against this backdrop, S&P 500 Futures remain indecisive while Indian equities lick their wounds by the press time.

Moving on, a light calendar seems to the USD/INR pair to extend the latest moves unless the scheduled Fed speak appears too hawkish.

Technical analysis

Tuesday’s Doji candlestick at the multi-day high joins nearly overbought RSI (14) tease USD/INR sellers.