- USD/INR retreats from the highest level in fortnight, pares the biggest daily gains in three weeks.
- Strong Oil price, diminishing energy supplies from Russia negatively affects Indian Rupee.
- US soft landing concerns, China recession fears jostle with firmer Indian growth figures to test USD/INR bulls.
- US ISM Services PMI, risk catalysts and energy market moves eyed for fresh impulse.
USD/INR pares the biggest daily jump in three weeks while reversing from a fortnight-high to 83.00 during early Wednesday. In doing so, the Indian Rupee (INR) pair traces the US Dollar’s retreat from the multi-day high amid cautious market sentiment ahead of the US ISM Services PMI. Even so, strong Oil prices, fears surrounding China’s economic weakness and the US soft landing, as well as the Sino-American tension, keep the pair buyers hopeful.
India’s heavy reliance on Oil imports drowned the INR the most in three weeks the previous day after the WTI Crude Oil Price refreshed its yearly high to $87.55, around $86.32 by the press time. That said, the black gold rallied after Russia and Saudi Arabia announced the extension of the voluntary supply cuts through the end of 2023. It should be noted that Russia has been a major energy source for India and supply cuts by the nation mean an increase in Oil prices, as well as a wider deficit, which in turn weighs on the Indian Rupee.
Even so, strong Indian growth figures for the second quarter (Q2) prod the Rupee sellers and might have played their role in the latest USD/INR retreat. As per the figures released last week, India’s second quarter (Q2) Gross Domestic Product (GDP) offered a positive surprise the previous week by rising to 7.8% YoY from 6.1% previous readings and 7.7% market forecasts.
Elsewhere, the China-induced risk-off mood joins the mostly upbeat US data and hawkish Fed talks to keep the USD/INR bulls hopeful. That said, China’s downbeat Caixin Services PMI for August, to 51.8 from 54.1 prior flagged economic fears about the Dragon Nation the previous day. Earlier in the day, US Commerce Secretary Gina Raimondo defended the current US tariffs on China until the four-year review is complete, which in turn joins the Taiwan concerns to highlight the Sino-American tension and fuel the pair.
It should be observed that China recently announced a slew of quantitative and qualitative measures to defend the economy from losing the post-COVID-19 recovery but has gained little positive response from the market. Also pushing back the bears was the news suggesting the ability to avoid default by China’s biggest reality player Country Garden.
On the other hand, the US Factory Orders for July dropped to the lowest since mid-2020 while posting -2.1% MoM figures versus -0.1% expectations and 2.3% previous growth. However, the orders excluding transport rose 0.8% MoM, Shipments of goods stayed firmer and inventories marked the first increase in three months.
Despite the mixed US data, Federal Reserve (Fed) Governor Christopher Waller’s defense of hawkish monetary policy during a CNBC interview and Cleveland Federal Reserve President Loretta Mester’s rejection of rate cuts favor the US Dollar bulls. It’s worth noting that Fed’s Waller also added, "Data is looking good for soft landing scenario,” which in turn defends the Fed’s preference for “higher for longer” rates.
Against this backdrop, S&P 500 Futures print mild losses after a downbeat Wall Street close, lacking moves around the 4,500 threshold by the press time, while the benchmark US 10-year Treasury bond yields remain sidelined near 4.26% after rising eight basis points (bps) the previous day.
Moving on, the US ISM Services PMI for August, expected 52.6 versus 52.7 prior, as well as the final readings of the US S&P Global PMIs for the said month, will be important for clear directions of the USD/INR price. Also important to watch will be China headlines and Oil price moves.
Also read: ISM Services PMI Preview: Strength may spook markets, boosting US Dollar
Technical analysis
A daily closing beyond the 21-DMA, around 82.90 by the press time, keeps the USD/INR buyers hopeful despite the pair’s latest pullback.
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