- USD/INR snapped two-day downtrend as US dollar regains upside momentum ahead of the key events.
- Oil prices also rebound from multi-day low, exerting downside pressure on rupee.
- RBI’s stance joins downbeat oil prices in the last few days to keep bears hopeful.
- Powell needs to win ECB vs. Fed battle to defend DXY bulls.
USD/INR prints mild gains around 79.70 while consolidating the two-day losses during the initial Indian trading session on Thursday. In doing so, the Indian rupee (INR) pair takes clues from the market’s rush toward the US dollar amid a cautious mood ahead of the key events. Also fueling the pair prices could be the recent rebound in WTI crude oil, as well as the sluggish sentiment.
US Dollar Index (DXY) pares the biggest daily loss in a month around 109.85 even as the US 10-year Treasury yields extend Wednesday’s downside to 3.23%, after taking a U-turn from the highest levels since mid-June the previous day. On the other hand, S&P 500 Futures fades the bounce off the lowest levels since July 19 as it seesaws around 3,980 by the press time. Additionally, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day.
It should be noted that the WTI crude oil extends late Wednesday’s rebound from a nearly eight-month low to $82.60 at the latest. In doing so, the black gold takes a U-turn from the downward sloping support line from May. It’s worth noting that India’s reliance on oil imports and record deficit make USD/INR prone to oil price moves.
While talking about the risk catalysts, the cautious mood ahead of the monetary policy meeting by the European Central Bank (ECB) and Fed Chair Jerome Powell’s speech gains major attention. Following that, hawkish Fed bets, covid fears emanating from China and the likely escalation in the Sino-American tussles also weigh on the market sentiment and fuel the USD/INR prices.
The market’s optimism spread by the firmer data from the major economies and Fed’s Beige Book, not to forget the mixed Fedspeak, seemed to have weighed on the USD/INR pair the previous day. On the same line could be the oil’s downside move and optimism of the Indian politicians to post notable growth numbers despite global recession fears.
Moving on, USD/INR traders may witness a volatile day wherein the 0.75% ECB rate hike can offer a short-term fall before the fresh downside, in a case where Fed’s Powell sounds hawkish. Overall, the pair is likely to remain on the bull’s radar as ECB’s capacity to tighten monetary policy is limited compared to the Fed. Also, Indian reliance on oil and pessimism in the Asia-Pacific zone, led by China, seems to keep the pair buyers hopeful.
Technical analysis
A monthly bullish channel keeps USD/INR buyers hopeful between 80.40 and 79.40.
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