- USD/INR takes offers to renew intraday low, stays inside weekly trading range near all-time high.
- Indian government offers fuel tax cuts to tame eight-year high inflation at home.
- Risk-on mood, repeated Fedspeak weighs on the US dollar.
USD/INR drops to an intraday low of around 77.65 as bears cheer the Indian government’s relief measures to tame inflation woes. Also keeping the pair sellers hopeful is the firmer sentiment that weighs on the US dollar.
That said, the Indian Finance Minister Nirmala Sitharaman announced a cut of eight rupees per liter on the excise duty on petrol and six rupees per liter for diesel to help quell inflationary pressures, per Reuters. “It will have a revenue implication of around one trillion rupees per year,” she added.
The news also has its negative implications as markets fear an expansion in the fiscal deficit and further worries for the INR.
Also keeping the USD/INR bears hopeful are comments from Barclays expecting 50 basis points (bps) of a rate hike in June and a 25 bps lift in the benchmark rates from the Reserve Bank of India (RBI).
On the other hand, Beijing’s record news covid cases and Shanghai’s push for more tests battle the repeatedly softer daily new covid numbers from Mainland China to favor the risk-on mood. That said, Mainland China's new coronavirus cases eased to 869 from 898 prior. Additionally favoring the risk-on mood, which in turn weighs on the US dollar, is the news conveying repeated comments favoring a 50 bps rate hike from the Fed.
While portraying the mood, the US 10-year Treasury yields rise by around 2.5 points (bps) to 2.81% whereas the S&P 500 Futures add near 1.0% gains, to 3,940 at the latest, by extending recovery from the one-year low marked during the last week.
Looking forward, risk catalysts may entertain USD/INR amid a light calendar on Monday. However, the US core PCE price index for April, the Fed’s preferred inflation gauge, joins the second reading of the US Q1 2022 GDP and preliminary PMIs for May to entertain traders. Also important will be the Minutes of the latest Federal Open Market Committee (FOMC), as well as signals from China, Russia and the Quad Summit in Tokyo.
Technical analysis
USD/INR seems struck inside a one-week-old trading range between 77.30 and 77.75. Given the overbought RSI (14) conditions, the Indian rupee (INR) pair may witness further downside targeting March’s high of 77.17.
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