USD/INR rebounds despite aggressive Fed rate cut

• The Indian rupee weakens in the Asian session on Thursday.
• Increased liquidity flowing into the Indian market and a dovish Fed is pulling down the US dollar.
• Traders await initial weekly jobless claims, the Philly Fed manufacturing index and existing home sales on Thursday.

Indian rupee (INR) loses ground amid recovery in US dollar (USD) on Thursday. The INR’s downside could be limited after the US Federal Reserve (Fed) made a big interest rate cut at its September meeting, which could weaken the US dollar (USD). In addition, persistent foreign institutional investors (FIIs) funds in Indian stocks could further strengthen the local currency.

However, a further rebound in crude oil prices could undermine the INR, India is the third largest oil consumer after the United States (US) and China. Going forward, investors await the weekly US Initial Jobomb Claims, Philly Fed Manufacturing Index and Existing Home Sales due later on Thursday.

Daily Digest Market Movers: Indian rupee lower, but potential downside appears limited

• The Reserve Bank of India (RBI) is unlikely to cut the benchmark interest rate during 2024 given uncertainty over food inflation, State Bank of India (SBI) Chairman CS Setty said.
• Finance Minister Nirmala Sitharaman said on Wednesday that India excels globally in terms of economic growth and will continue to do so in the next few years.
• The Federal Open Market Committee (FOMC) decided to cut the federal funds rate by 50 basis points (bps) to a range of 4.75% to 5.00%, the Fed’s first rate cut in more than four years.
• Fed Chairman Jerome Powell noted during a news conference that the half-point rate cut was not a new model for the central bank, but that policymakers want to keep the economy and labor market in good shape .
• Fed policymakers revised their quarterly economic forecasts, raising the median projection for unemployment through the end of 2024 to 4.4 percent from June’s projection of 4 percent. Fed officials raised their projection for the long-term federal funds rate to 2.9 percent from 2.8 percent.

Technical Analysis: USD/INR’s positive position remains fragile in the long term

The Indian rupee is trading softer during the day. The USD/INR pair broke below the rectangle on the daily chart. The pair’s bullish outlook looks vulnerable as the price approaches the 100-day exponential moving average (EMA). If the pair closes below the 100-day EMA, it could resume downside. Meanwhile, the 14-day Relative Strength Index (RSI) is in bearish territory below the median near 38.0, suggesting the path of least resistance is to the downside.

The 100-day EMA at 83.64 acts as an initial support level for the pair. A break above this level could lead to a drop to 83.31, the lowest since June 18. Extended losses could attract some sellers at the psychological level of 83.00.

On the upside, the first upside barrier for USD/INR appears at the support-turned-resistance level near 83.75. A crucial barrier is seen in the 83.90-84.00 region.