USD/INR turns upside down as foreign banks intervene

The Indian Rupee (INR) bounces back against the US Dollar (USD) after sliding to record lows near 90.75 during afternoon trading hours in India on Thursday. The Indian currency snaps six-day losing streak against the US Dollar (USD) after dollar sales from multiple foreign banks, Reuters reported.

Earlier, in the day, the USD/INR pair posted a fresh all-time high around 90.75 as the Indian Rupee continued to face backlash due to the consistent outflow of foreign funds from the Indian equity market.

Foreign Institutional Investors (FIIs) have not stopped paring their stake in the Indian stock market despite remaining net sellers in the July-November period. In the first trading days of December, FIIs have sold shares worth Rs. 8,020.53 crore cumulatively.

The major reason behind weak sentiment towards the Indian stock market is the absence of a trade deal announcement between India and the United States (US). According to comments from the White House, which came a few months back, India could have been the first nation inking a bilateral deal with Washington, but trade talks were delayed due to India-Pakistan tensions. And, now India is one of few nations who have not entered a trade agreement with the US. Also, tariffs imposed on India by the US are 50%, one of highest among Washington’s trading partners, which have dampened the competitiveness of Indian products in the global market.

A Reuters poll of FX strategists showed this week that the Indian Rupee could gain ground against the US Dollar over the next three months if India and the US agree to a trade deal. The poll also showed that the pair could decline 0.3% to near 89.65 in the coming 12 months.

On the domestic front, investors await the monetary policy announcement by the Reserve Bank of India, which is scheduled for Friday. The RBI is expected to cut its Repo Rate by 25 basis points (bps) to 5.25%. This year, the RBI has already reduced its Repo Rate by 100 bps as inflationary pressures have remained lower.

Daily digest market movers: US private sector shed 32K jobs in November

• The US Dollar is broadly underperforming its major currency peers amid firm expectations that the Federal Reserve (Fed) will cut interest rates in its next week’s monetary policy.
• At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to its fresh monthly low of 98.80 posted on Wednesday.
• According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December policy meeting is 89%.
• Traders are increasingly confident that the Fed will cut interest rates next week as US labor market conditions seem to be worsening further. The US ADP reported on Wednesday that private employers fired 32K jobs in November, while they were expected to have added 5K fresh workers.
• Signs of weakening labor demand often underpin the need to ease monetary policy. Lately, a significant number of Federal Open Market Committee (FOMC) members have also expressed the need to cut interest rates further to support the job market.
• “I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions, adding that there is room for a further adjustment in the near term,” New York Fed Bank President John Williams said in late November. Williams supported the need for further monetary policy expansion, citing that the "economic growth has slowed and the labor market gradually cooled."
• For more cues on the US interest rate outlook, investors will focus on the Personal Consumption Expenditure Price Index (PCE) data for September, which will be released on Friday. However, the impact of the Fed’s preferred inflation gauge is expected to be limited as the data is older, and therefore will be insufficient to indicate the current status of inflation.

Technical Analysis: USD/INR remains above 20-day EMA

USD/INR corrects to near 90.15 after posting a fresh all-time high around 90.70 during afternoon in India on Thursday.

The 14-day Relative Strength Index (RSI) retraces to near 68.01 after turning overbought around 76.14, flagging a cool down in stretched momentum.

Initial support is the 20-day Exponential Moving Average (EMA) near 89.40; above this gauge, the uptrend would stay in place. On the upside, the pair could extend its rally towards 91.00.