The USD/INR currency pair held steady on Thursday amid expectations that the Reserve Bank of India (RBI) might step in to prevent the Indian Rupee (INR) from depreciating beyond the 84.00 level. Traders are also awaiting the release of India’s Consumer Price Index (CPI) and Industrial Output data later in the day.
Support for the INR is coming from lower crude oil prices, which are easing import costs for India, the world’s third-largest oil importer. Despite concerns over weakened oil demand, which have offset the impact of Hurricane Francine on U.S. oil production, the reduction in oil prices benefits the INR.
The INR is also expected to gain from potential increases in foreign investment in Indian equities, driven by August’s U.S. CPI data. This data has raised expectations that the Federal Reserve (Fed) may initiate a 25-basis point rate cut in September.
Market sentiment, as reflected by the CME FedWatch Tool, suggests a strong consensus for at least a 25-bps rate cut by the Fed. The probability of a 50-bps cut has decreased significantly to 15.0%, down from 44.0% a week ago.
In addition to monetary policy expectations, India is considering relaxing investment rules for Chinese firms and easing visa issuance for Chinese nationals to bolster its manufacturing sector. This comes in response to a nearly doubling of India’s trade deficit with China since 2020, according to Reuters.
The U.S. CPI for August fell to 2.5% year-on-year, down from 2.9% and below the expected 2.6%. Core CPI, excluding food and energy, remained at 3.2% year-on-year, with a monthly increase to 0.3%.
In other news, former President Donald Trump and Democratic nominee Kamala Harris engaged in their first presidential debate in Pennsylvania, with Harris emerging victorious according to a CNN poll. The debate focused on economic issues including inflation.
Reuters also reported that Indian bankers are advising the federal government to increase short-term and green bond issuances and to restart floating-rate bond auctions, reflecting ongoing discussions about the government’s borrowing strategy for the remainder of the fiscal year.
Chicago Fed President Austan Goolsbee commented that Fed officials are aligning with market sentiment regarding a forthcoming policy rate adjustment. FXStreet’s FedTracker rated Goolsbee’s remarks as dovish, with a score of 3.2.
India’s foreign exchange reserves reached a record $683.99 billion as of August 30, up from $681.69 billion previously. This increase is attributed to strong foreign investment and the inclusion of Indian assets in JPMorgan’s major emerging market debt index.
Technical analysis shows the USD/INR pair consolidating just below the 84.00 level, forming a symmetrical triangle pattern. The 14-day Relative Strength Index (RSI) remains above 50, indicating a continued bullish trend. Immediate support is seen at the nine-day Exponential Moving Average (EMA) of 83.93, aligning with the lower boundary of the triangle. A drop below this level could lead to further declines. Conversely, a breakout above 84.00 could push the pair towards its all-time high of 84.14 recorded on August 5.
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