The USD/INR currency pair remained steady around the 84.00 level on Wednesday, with traders speculating that the Reserve Bank of India (RBI) might intervene in the foreign exchange market to support the Indian Rupee (INR) and prevent further depreciation.
The INR found some support against the US Dollar (USD) due to falling crude oil prices, which are expected to reduce India’s import costs. Brent crude futures dropped to $64.75 per barrel, the lowest level since December 2021, amid concerns over weakening global demand.
The USD is also under pressure as US Treasury yields continue to decline ahead of the US Consumer Price Index (CPI) data release later today. This inflation report could provide new insights into the potential magnitude of a Federal Reserve (Fed) interest rate cut in September.
Market expectations, as indicated by the CME FedWatch Tool, suggest a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. However, the likelihood of a 50 bps rate cut has decreased slightly to 31.0%, down from 38.0% the previous week.
In other news, the first US presidential debate featured former President Donald Trump and Democratic nominee Kamala Harris, with a significant focus on the economy and inflation. Trump criticized the current economic conditions, describing them as disastrous.
Reuters reported on Tuesday that Indian investors are pushing for increased issuance of short-term and green bonds and a restart of floating-rate bond auctions. These recommendations are part of discussions on the Indian government’s borrowing strategy for the latter half of the fiscal year.
Chicago Fed President Austan Goolsbee commented that Fed officials are aligning with market sentiment that a policy rate adjustment is imminent. The FXStreet FedTracker rated Goolsbee’s comments as dovish, assigning a score of 3.2.
India’s foreign exchange reserves reached a record high of $683.99 billion as of August 30, up from $681.69 billion previously. This increase is attributed to a significant inflow of foreign currency, driven by strong economic growth and the inclusion of Indian assets in JPMorgan’s emerging market debt index.
The Composite PMI for India showed robust growth in August, with the service sector experiencing its fastest expansion since March, driven by increased domestic orders, according to Pranjul Bhandari, Chief India Economist at HSBC.
From a technical perspective, the USD/INR pair is consolidating within a symmetrical triangle pattern on the daily chart, indicating reduced volatility. The 14-day Relative Strength Index (RSI) remains above 50, suggesting a bullish trend. Immediate support is seen at the nine-day Exponential Moving Average (EMA) of 83.92, while resistance is tested at the 84.00 level. A breakout above this resistance could drive the pair toward the all-time high of 84.14, while a drop below the support could push it towards a six-week low of 83.72.
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